Brazil avoided falling into recession on Thursday with the release of new economic data showing Latin America’s largest economy grew 0.4 per cent quarter on quarter in the three months to June, a better than expected performance.
The figures showed that Brazil’s economy expanded after shrinking 0.2 per cent in the first quarter, and its performance was better than analysts had expected. The economy grew 1 per cent compared with the same period last year. Although the services sector grew at a sluggish 0.3 per cent quarter on quarter, the industry sector returned to positive growth territory at 0.7 per cent.
“This is an extremely positive surprise,” said André Perfeito, chief economist at broker Necton. Capital Economics, a research company, said the “surprisingly strong” quarterly rise in Brazilian gross domestic product confirmed that the “extremely weak activity recorded earlier this year was a blip rather than the start of a renewed downturn”.the consultancy forecast that the economy would expand 0.8 per cent this year and by 2 per cent in 2020.
The data are unlikely to be of immediate solace to President Jair Bolsonaro, who was elected almost a year ago on promises to shake up and revitalise the economy but has been slow to implement his reform agenda. Since his inauguration in January, the far-right leader has been embroiled in almost constant controversy on issues ranging from gun control to deforestation in the Amazon.
“The last five years were extraordinarily challenging. The
economy has been crawling out of a very deep and long recession at a painfully slowly pace,” said Alberto Ramos of Goldman Sachs. “Hence, the economy is still operating with a high degree of slack.”
Earlier this year, many in Brazil expected a government-led liberalisation programme to boost the economy after years of torpor but, since then, the prevailing sentiment has soured. Mr Perfeito said he thought Thursday’s result would lead to forecasts being revised upwards.
Yet with the exception of a much-vaunted pension reform — which is likely to be approved in Congress in the coming months — investors are still waiting for a speedy overhaul of the country’s Byzantine tax system and more privatisations. Foreign investors have pulled almost $5bn from the main B3 stock exchange this year, the biggest outflow since 2008.
“Pension reform is positive, but is it enough? No,” said Ms Latif. Fernanda Consorte, chief economist at Ourinvest Bank in São Paulo, echoed this analysis. “When we look at the economy, we thought that the elections and the pension reform would solve the problem. But reform will not bring results in the short term.”
Unemployment in Brazil is still above 12 per cent, while the number of citizens living below the poverty line has increased to almost 55m, up from 52m just three years ago. As permanent contracts have dried up, many have taken jobs in the gig economy.
“I used to work 44 hours a week. Now I work 12 or 14 hours a day to receive the same amount,” said Gustavo de Abreu, a 32-year-old driver who worked in the chemical industry until he was fired in 2017.
