Investment in Brazil

Brazil - Investment

GDP rebounds solidly in Q2, exceeding expectations

Brazil’s economy regained some lost steam in the second quarter, with GDP rebounding after contracting in sequential terms in the first quarter for the first time since the 2015–2016 recession. Seasonally-adjusted GDP increased 0.4% quarter-on-quarter in Q2, contrasting Q1’s revised 0.1% contraction (previously reported: -0.2% quarter-on-quarter). The result was slightly above forecasters projections of a 0.3% rise and was a welcome surprise after months of largely disappointing data.

The upturn was driven largely by a strong rebound in fixed investment, as well as an improved performance by the external sector. Fixed investment swung from a 1.2% quarter-on-quarter contraction in Q1 to a solid 3.2% expansion in Q2. Loose monetary policy and improved industrial activity likely supported the rebound. Meanwhile, household spending remained steady at Q1’s 0.3% clip, but government consumption dropped 1.0% in Q2 amid tight finances (Q1: +1.0% qoq).

In the external sector, exports of goods and services fell 1.6%, but less sharply than Q2’s 2.9% contraction. Evaporated demand from major trading partner Argentina, coupled with the more subdued global backdrop, weighed on shipments abroad, as did subdued mining activity partly due to ongoing woes at Vale. Meanwhile, import growth inched up from 0.9% in Q1 to 1.0% in Q2.

On an annual basis, growth jumped from 0.5% in Q1 to 1.0% in Q2, supported by a stronger domestic economy. Looking ahead, growth is expected to stay soft this year, plagued by a challenging environment both at home and abroad. While improved sentiment and accommodative monetary policy should support the recovery, subdued external demand and a weak labor market will limit activity.

LatinFocus Consensus Forecast panelists see growth at 1.0% in 2019, which is unchanged from last month’s estimate. For 2020, the panel sees the economy growing 2.2%.