Brazil: GDP grows at softest pace since Q4 2022 in Q3; still beats market expectations
The Brazilian economy largely stagnated in the third quarter of 2023, when GDP growth waned to 0.1% on a seasonally adjusted quarter-on-quarter basis, down from 1.0% in the second quarter. Q3’s reading marked the slowest growth since Q4 2022, but still surprised markets to the upside. On an annual basis, economic growth moderated to 2.0% in Q3, from the previous period’s 3.5% growth. Q3’s reading marked the weakest reading since Q1 2022.
The quarterly slowdown chiefly reflected public spending growth softening to 0.5% in Q3 (Q2: +1.0% s.a. qoq). Moreover, fixed investment declined at a quicker rate of 2.5% in Q3, from the 0.3% contraction logged in the previous quarter, largely reflecting high interest rates dampening construction activity. More positively, household spending picked up by 1.1% seasonally adjusted quarter-on-quarter in the third quarter (Q2: +0.9% s.a. qoq), which marked the best reading since Q2 2022. Household consumption was supported by public welfare programs, lower average inflation, a lower unemployment rate and continued credit growth.
Turning to the external sector, exports of goods and services growth waned to 3.0% in Q3 (Q2: +3.5% s.a. qoq). Meanwhile, imports of goods and services deteriorated, contracting 2.1% in Q3 (Q2: +4.1% s.a. qoq).
Despite weak Q3 data and October’s disappointing economic activity data—a GDP proxy—the largest economy in Latin America had grown 3.2% year on year through September. With another year-on-year expansion forecast for Q4 2023, GDP is on track to have tallied a 3.0% expansion—in line with our Consensus—in the year as a whole. That would bring 2023’s growth far above the 0.8% predicted as of January 2023.
The economy was surprisingly resilient to tight monetary policy throughout the year, and beat growth expectations up to and including Q3, largely thanks to a bumper harvest, receding inflation and robust government spending.
On 2024 GDP growth, analysts at the EIU commented:
“Higher social spending, minimum-wage rises and a boost to credit from a recently implemented household debt structuring programme for up to 30m people, will put a floor under private consumption and support GDP growth. However, fiscal and debt dynamics will not be strong enough to bring down local financing costs substantially, and this will weigh on investment. […] The tax simplification reform […] augurs well for long-term growth.”