Brazil: Growth slumps in Q1
May 30, 2018
Recently-released GDP data revealed that the recovery started off 2018 on a sour note. GDP rose 1.2% annually in the first quarter, just above half the pace of the fourth quarter’s 2.1% expansion. The result was slightly below market expectations of 1.3% growth. Notably, the first quarter had significantly fewer working days than the same period last year, which weighed on the overall growth reading. The data confirms that Brazil’s recovery from its worst recession in modern history is on weak footing ahead of presidential elections later this year.
The first quarter’s slowdown was largely broad-based with most components of GDP deteriorating from the fourth quarter. Fixed investment growth slowed from 3.8% annually in Q4 to 3.5% in Q1, although it still held up relatively well in the face of political uncertainty. Government spending fell 0.8% reflecting fiscal adjustment efforts (Q4 2017: -0.4% year-on-year). Meanwhile, private consumption was a bright spot in the data, expanding 2.8% annually, the best reading since Q4 2014. Low inflation and improving confidence likely drove the uptick.
On the external side, both exports and imports growth fell in the first quarter. Exports rose 6.0% year-on-year, below the fourth quarter’s 8.1% increase. While higher commodity prices aided exports revenues, lower agricultural production and a high base of comparison due to last year’s bumper output weighed on export growth. Meanwhile, imports grew 7.7% (Q4: +8.1% yoy).
On a quarter-on-quarter basis, GDP expanded a seasonally-adjusted 0.4%, above Q4’s 0.2% rise.
Looking ahead, the recovery is expected to regain some lost momentum in the coming quarters, chiefly thanks to higher household spending amid an improving labor market and low inflation. However, reduced demand for emerging market assets due to rising U.S. interest rates, political uncertainty and a truckers’ strike will weigh on activity. In May, a nationwide protest by the truckers’ union Abcam over diesel price hikes disrupted economic activity throughout the country, halting exports and leading to some shortages of goods in cities. A similar strike in 1999 that latest five days dented economic activity notably.