Brazil GDP

Economy expands strongly again in Q1

Q1 expansion beats expectations: Brazil's GDP grew 1.1% in seasonally adjusted quarter-on-quarter terms in Q1, following a 0.3% expansion in the prior quarter. Q1's reading was the strongest in a year and marginally overshot market expectations. In annual terms, the economy increased 1.8% in Q1, unchanged from the previous quarter's reading.

Fiscal stimulus underpins Q1’s strong outturn: Relative to the previous quarter's data, readings in Q1 improved for private consumption (+1.0% in seasonally adjusted quarter-on-quarter terms vs +0.2% in Q4), fixed investment (+3.5% vs -3.4% in Q4) and imports of goods and services (+4.4% vs -1.1% in Q4). In contrast, readings softened for government consumption (+0.4% vs +0.9% in Q4) and exports of goods and services (-1.7% vs +3.7% in Q4). With October’s general election approaching, government stimulus—including income tax exemptions, a minimum wage hike, fuel subsidies and debt relief—provided a powerful boost to household incomes, driving a firm acceleration in private spending despite high borrowing costs. Moreover, fixed investment rebounded sharply after contracting in Q4, reflecting improved business confidence on the back of firming domestic demand. Less positively, government consumption growth slowed as expenditure shifted toward household transfers. Moreover, the external sector dragged on overall GDP growth as imports recovered—driven by strong household and business spending—and exports fell.

GDP growth to ease in coming quarters: GDP growth is expected to moderate from Q1 in Q2 as higher inflation due to the Iran energy shock erodes the real income gains that powered Q1's strong print; moreover, fixed investment growth will likely retreat from its recently unsustainably high levels. More positively, a pickup in soybean shipments should buoy exports. Looking further ahead, H2 GDP growth is expected to stay close to Q2's pace, as monetary policy easing will arrive too late to materially stimulate domestic demand.

Panelist insight: On the outlook for the coming quarters, analysts at EIU commented: “After a strong start to the year, we expect economic growth to slow over the next two quarters as the initial boost from fiscal stimulus fades and restrictive monetary policy exerts a greater drag on consumption and investment.”

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