Brazil: Growth slows in Q4, but beats market expectations
The economy lost some momentum in the final quarter of 2020, with GDP growth slowing to 3.2% in seasonally-adjusted quarter-on-quarter terms, from 7.7% in the third quarter. That said, the result beat market analysts’ expectations of a 2.8% increase. On an annual basis, GDP contracted 1.1% in Q4, marking a softer decline than the previous period’s 3.9% fall. Taking the year as a whole, economic activity dropped 4.1% in 2020, contrasting 2019’s 1.4% expansion and marking the largest contraction since the current series began in 1996.
Q4’s softer quarterly expansion largely came on the back of a more moderate rise in both household and public spending. Private consumption growth decelerated to 3.4% in seasonally-adjusted quarter-on-quarter terms in Q4, from 7.7% in Q3. Moreover, public spending growth eased to 1.1% in Q4 (Q3: +3.5% s.a. qoq). Meanwhile, fixed investment expanded 20.0% in Q4, accelerating from the 10.7% rise recorded in the previous quarter.
On the external front, exports of goods and services fell 1.4% on a seasonally-adjusted quarterly basis in the final quarter, softening from Q3’s 2.0% contraction, likely owing to a pickup in global demand. In addition, imports of goods and services rebounded, growing 22.0% in Q4 (Q3: -9.6% s.a. qoq).
Commenting on the outlook for the Brazilian economy, Alberto Ramos, economist at Goldman Sachs, noted:
“Overall, we expect the recovery to continue in 2021, supported by the gradual and selective easing of mandated social distancing protocols and lockdowns, easier domestic and external financial conditions, additional fiscal and lagged monetary stimulus, supportive credit flows, recovering commodity prices, and firming global growth. However, the recent deterioration of the Covid-19 viral picture, rising inflation (particularly food), a weak labor market, the moderation of disposable income growth with the reduction of the emergency fiscal transfers to households, and the softening of confidence indicators should weaken the pace of the recovery in the coming months until a mass vaccination program releases some of the pent up demand by 2H2021, particularly in contact-intensive services.”
Moreover, Marcos Casarin, chief LatAm economist at Oxford economics, reflected:
“Despite a brief decline in Q1, Brazil is expected to be one of the first LatAm economies to recover to its pre-pandemic GDP level, alongside Colombia, in Q4 2021. A relatively fast vaccine rollout and likely extension of a smaller version of the popular ‘corona voucher’ cash handout scheme from 2020 will aid Brazil’s recovery.”