Brazil: Growth stalls in Q2 weighed on by truckers' strike
September 3, 2018
Recently-released GDP data revealed that the recovery remained weak in the second quarter of 2018. GDP rose a seasonally-adjusted 0.2% over the previous quarter in Q2, broadly unchanged from Q1’s 0.1% increase. The result was largely in line with market analysts’ expectations of 0.1% growth. The weak print was largely driven by economic disruptions caused by a truckers’ strike that began in May and blockaded highways and the transport of goods. Moreover, it confirms that Brazil’s recovery from its worst recession in modern history is on weak footing ahead of October’s presidential elections.
Looking at the details, a positive contribution from inventories supported the slight pick-up in growth, while elsewhere economic dynamics were weak. Household consumption growth slid from 0.4% quarter-on-quarter in Q1 to 0.2% in Q2. Consumer sentiment also declined throughout the period, likely weighed on by the uncertain political backdrop, while inflation jumped due to the truckers’ strike. The tense political environment, looming elections and tightening global financial conditions took a toll on investment, and fixed investment contracted a notable 1.8% in Q2 (Q1: 0.3% quarter-on-quarter). Government spending, however, picked up, swinging from a 0.3% fall in Q1 to a 0.5% increase in Q2.
The external sector deteriorated notably in the second quarter, with exports of goods and services falling 5.5% qoq, the worst result since Q4 2014. The truckers strike prevented goods from reaching the country’s ports, weighing heavily on the result. Meanwhile, imports also contracted, falling 2.1% (Q1: +0.8% qoq).
On an annual basis, the GDP print was also weak, with growth sliding from Q1’s 1.2% to 1.0%. The slowdown was driven by plummeting exports, while import growth also decelerated but at a more modest pace. In addition, household spending weakened in Q2. However, government spending rebounded and fixed investment growth gained steam in annual terms.
Looking ahead, the recovery is expected to regain some lost momentum as the truckers’ strike shock subsides. However, a less supportive global backdrop due to rising U.S. interest rates and political uncertainty are expected to keep the recovery modest overall.