Brazil: Economy records best result since Q4 2020 in Q1
Economic activity expanded 1.9% on a seasonally adjusted quarter-on-quarter basis in the first quarter, contrasting the 0.1% contraction logged in the fourth quarter of last year. Q1’s reading marked the best result since Q4 2020, and was well above market expectations. A record grain harvest boosted activity in the quarter, with the agricultural sector expanding a whopping 21.6%. In contrast, double-digit interest rates weighed on consumption and investment.
Looking at expenditure components, private consumption increased 0.2% in the first quarter, which was below the fourth quarter’s 0.4% expansion. Public consumption was stable at a 0.3% expansion in Q1. Meanwhile, fixed investment slid at a quicker rate of 3.4% in Q1, from the 1.3% contraction in the prior quarter.
Exports of goods and services fell 0.4% on a seasonally adjusted quarterly basis in the first quarter, which contrasted the fourth quarter’s 3.3% expansion. Imports of goods and services fell at a sharper rate of 7.1% in Q1 (Q4 2022: -3.1% s.a. qoq), marking the worst performance in over two years.
Looking ahead, the Consensus is for economic momentum to slow sharply as the boost from the record harvest fades, high interest rates feed through to activity.
On the reading and outlook, EIU analysts said:
“Had the bumper crop not put a floor under overall economic activity, first quarter growth would have been significantly weaker. In view of the high base, we expect agriculture-related stimulus to lose momentum throughout the year, heralding a broader slowdown in growth.”
Goldman Sachs’ Alberto Ramos gave his take:
“Going forward, we expect activity to benefit from renewed fiscal and quasi-fiscal stimulus […] expansion of the real wage bill, and the impact of a favorable outlook for agriculture food prices on real disposable income. However, the fading impulse from economic reopening, tight domestic monetary and financial conditions, high levels of household indebtedness, low levels of economic slack, moderating job creation, soft consumer and business confidence, and the incipient turnaround in the credit cycle are expected to generate headwinds to activity.”