Brazil records first positive year-on-year GDP growth in Q2 since Q1 2014

The Brazilian economic growth expanded more than expected in the second quarter. The GDP grew 0.3 percent year-on-year in the June quarter, the first positive year-on-year print since the first quarter of 2014. Most of the rebound from the demand side of the GDP came through a 2.5 percent year-on-year rise in real exports of goods and services and a 0.7 percent rise in personal consumption expenditures. The rebound in PCE is perhaps, the best news from the second quarter release, as this indicates that the disinflation that has occurred over the past year and the ensuring drop in interest rates is beginning to influence the economic activity, noted Wells Fargo in a research report.

But not all the data that was released was positive. Another reason for the positive year-on-year growth rate was because real imports of goods and services dropped 3.3 percent compared to the second quarter of 2016.

Imports of goods and services entered the calculation of GDP with a negative sign. This negative reading in imports and the fact that real gross fixed investment dropped 6.5 percent compared to last year also paints a still not so positive view of the Brazilian economy. Moreover, government expenditures dropped 2.4 percent in the second quarter versus a year earlier, underscoring the limited ability of the Brazilian government to drive economic growth as was the case in the past.

Even if the Brazilian economy has come out of this historic recession, the recovery process is expected to be slow, according to Wells Fargo. The still unstable political environment and the difficult fiscal situation would continue to prevent the economy from rebounding at a faster rate even as the Brazilian central bank continues to expand monetary policy, added Wells Fargo.

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