Latin America September 01, 2023 / 04:00 pm UTC

Brazil GDP Review: Surprising 0.9% (QoQ) Growth, how long will it last?

By Lucas Eduardo Veras Costa

Brazil's GDP for Q2 surpassed expectations, with a 0.9% growth, driven by the Industrial and Services sectors. Extractive Industry and Services both performed well, while Agriculture contracted. Household Consumption and Exports were strong, but Investment remained stable. The positive results were influenced by government stimuli and increased oil production. However, we anticipate economic deceleration in the second half, given that most stimuli have been absorbed. As a result, our 2023 growth forecast has been revised upward to 3.0% from 2.3%.

Figure 1: Brazil GDP Supply Optic (2019 = 100, Seasonally Adjusted)

Source: IBGE

The Brazilian National Institute of Statistics (IBGE) has released the GDP figure for the second quarter of the year. The results have shown that the Brazilian economy grew by 0.9% (QoQ) during the quarter, exceeding market expectations, which were anticipating a modest 0.3% growth. This time, the engine of growth was concentrated in the Industrial and Services sectors.

The Extractive Industry grew strongly by 0.9%. Most of this growth was related to the excellent performance of the extractive industry (+1.8%), as the oil and mining sectors increased their production during the quarter. Moving to services, this sector grew by 0.6% (QoQ). Construction also showed robust growth, expanding by 0.7% in the quarter, while Manufacturing exhibited a more modest 0.3% growth.

Services grew by 0.6% (QoQ), driven especially by Financial Activities, which expanded by 1.3%. Much of this growth was influenced by increased insurance sales during the quarter. The Transport sector grew by 0.7%. Other service activities, which encompass high-contact activities, also experienced strong growth, increasing by 1.7% after a 1.0% drop in the previous quarter. Agriculture was the only major sector to contract during the quarter, declining by 0.9% after registering a strong 1.8% growth.

Looking at the demand side, Household Consumption showed a 0.9% growth, driven especially by the strong labor market, government transfers to the poorest households, and tax exemptions on car production. Government consumption also grew but at a slower pace, by 0.7% (QoQ). The bad news comes from Investment, which remained stable during the quarter, growing modestly by 0.1%. Exports rose strongly, expanding by 2.9%, but Imports grew at a higher pace, increasing by 4.5% in the quarter.

Figure 2: Brazil GDP Demand Optic (2019 = 100, Seasonally Adjusted)

Source: IBGE

The positively surprising results could be attributed to two factors: strong government stimuli through transfers, tax exemptions, and direct purchases, and increased oil production, a consequence of the operation of new oil fields. Investment, which is showing stagnation and could promote more sustained growth, remained stagnant. We still believe that the economy is likely to decelerate in the second half, as most of these stimuli have already been absorbed by the economy. Due to the higher-than-expected growth in the first half of the year, we are revising our growth forecast for 2023 to 3.0% from 2.3%.

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Analyst Declaration
I, Lucas Eduardo Veras Costa, the lead analyst declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.