Economy records fastest upturn since Q4 2022 in the first quarter

According to a preliminary estimate, GDP rebounded, expanding 1.4% year on year in the first quarter, contrasting the 0.4% contraction logged in the fourth quarter of last year. Q1's reading marked the best result since Q4 2022.

Private consumption accelerated to 1.2% year-on-year in the first quarter, which marked the best reading since Q4 2022 (Q4 2023: +0.2% yoy). Lower inflation and higher employment supported the reading. Public spending growth, meanwhile, softened to 3.2% in Q1 (Q4 2023: +9.2% yoy). Fixed investment growth improved to 5.8% in Q1, up from the 0.1% expansion logged in the previous quarter and driven by higher public and private investment. On the external front, exports of goods and services growth moderated to 2.5% in Q1 (Q4 2023: +4.9% yoy). Conversely, imports of goods and services growth picked up to 5.4% in Q1 (Q4 2023: +3.0% yoy), marking the best reading since Q3 2022.

Our Consensus is for GDP growth to pick up further later this year as interest rates and inflation continue to fall.

On the outlook, EIU analysts said: “We forecast that GDP will rebound strongly in 2024, expanding by 2.5%, after political turmoil and extreme weather led to a contraction of 0.6% in 2023. Growth this year will come from lower inflation and interest rates, and from positive base effects. However, only modest improvement in the business environment under Ms Boluarte, uncertainty over whether she will remain in office and restrained global economic growth will preclude a stronger performance.” Itaú Unibanco’s Mario Mesquita said: “We now expect the economy to grow by 2.7% in 2024, slightly up from our previous forecast of 2.5%, driven by our call of higher growth in China. We expect activity to gain traction in 2Q24, as weather shocks fade and the economy benefits from even better terms-of-trade.”

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