Brazil Country Report

Brazil’s Q2 GDP result surprises on the upside

Real GDP grew by 1.2% quarter on quarter on a seasonally adjusted basis in April-June, according to the national statistics institute (IBGE). The result reflects the end of pandemic-related mobility restrictions and fiscal stimulus measures introduced by the government. On a year-on-year basis, GDP rose by 3.2%. We currently forecast real GDP growth of 2.2% in 2022, but the surprisingly positive second-quarter figure will prompt us to revise up our projection by about half a percentage point in the coming weeks. 

Why does it matter?

The second-quarter GDP data are significant because they show that private consumption and fixed investment are still strong, although we expect a slowdown in the second half of the year. The lifting of mobility restrictions, as well as the government’s introduction of fiscal stimulus measures—in view of the fast-approaching October general election and high inflation—led to private consumption growth of 2.6% quarter on quarter and 5.3% year on year. Meanwhile, gross fixed capital formation rose by 4.8% quarter on quarter and by 1.5% year on year owing to tax cuts to several manufactured products along with fuel price cuts, despite elevated interest rates. We expect these measures to support growth over the rest of the year, but the tight interest-rate environment (the Selic benchmark rate currently stands at 13.75%) and uncertainty around the upcoming election will dampen activity in the second half, even though inflation finally showed signs of decelerating in July. 

On the supply side, services and industry led the recovery. Services benefited greatly from the lifting of the mobility restrictions, and industry was lifted by construction as regional governments stepped up investment in local infrastructure ahead of the election. 

Business and consumer confidence, as measured by FGV (a local think-tank), rose in August on the back of easing inflation and increased fiscal stimulus, but the months going into 2023 are likely to be more turbulent. Indeed, business confidence ticked above the 100-point neutral rate, and consumer confidence reached 83.6 points—the highest level since February 2020 (before covid-19 hit Brazil). The recovery in the job market also contributed to the improvement in business and consumer confidence. However, we expect the bleak global outlook (driven by an economic slowdown in the US and Europe) and political tensions ahead of Brazil’s election to dampen growth into next year.

Business and consumer confidence rose in August and are back to pre-pandemic levels

What next?

Given the strong second-quarter data, we will be revising up our real GDP growth forecast for 2022 by about half a percentage point. We may also revise our growth projection for 2023, but we currently think that social spending will offset the global economic downturn, supporting our forecast for tepid real GDP growth of 0.3% next year.

The analysis and forecasts featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.