Brazil: Growth jumps in Q4
March 1, 2018
Recently released GDP data confirmed that the recovery shifted into a higher gear in the final quarter of 2017. GDP rose 2.1% annually in Q4, the largest expansion since Q1 2014. The result was above Q3’s 1.4% increase but was weaker than expected by market analysts. In the full year 2017, the economy grew a modest 1.0% (2016: -3.5%).
The acceleration in Q4 was driven chiefly by improved dynamics in the domestic economy. Household spending grew 2.6% annually, the best reading since Q4 2014 (Q3: +2.2% year-on-year), aided by an improving labor market and low inflation. Fixed investment grew for the first time since Q1 2014 (Q4: +3.8% yoy; Q3: -0.5% yoy). Business confidence improved notably in the quarter, although remained in pessimism territory. Although the government has made some progress on economic reforms, it remains to be seen if these gains will hold given the highly turbulent political scene and the upcoming elections. Meanwhile, government consumption fell 0.4% in Q4 (Q3: -0.6% yoy).
On the external side, soaring imports dented the external sector’s contribution. Imports grew 8.1%, notably above Q3’s 5.7% expansion, reflecting the healthier state of the domestic economy. Exports grew at a robust pace of 9.1% annually in Q4 (Q3: +7.6% yoy), thanks to firmer commodity prices and a healthy global backdrop.
On a quarter-on-quarter basis, GDP expanded a seasonally-adjusted 0.1%, below Q3’s 0.2% quarter-on-quarter rise.
All-in-all, the fourth quarter GDP release signals that the Brazilian economy is on a firm, if lackluster, recovery path. Keeping the recovery on track will require a reform-minded president, however, and it is difficult to judge if the election set for next October will yield a market-friendly outcome.