In the second quarter of this year, the Brazilian economic growth had accelerated to 0.4 percent from the first quarter’s contraction of 0.1 percent, surpassing consensus expectations of a 0.2 percent rise. The reading prevented the nation from re-entering a technical recession, which was deemed as a risk by market participants, noted Barclays in a research report.
On the supply side, the growth in industrial activities was the highlight, rising 0.7 percent quarter-on-quarter, underpinned by manufacturing and construction, which rose 2 percent and 1.9 percent, respectively. However, industrial activity was still dragged by mining.
Meanwhile, services had grown 0.3 percent, stimulated by commerce and real estate activities, whereas agricultural activities dropped 0.4 percent from 1.6 percent. Investment led the gains from the demand perspective, growing 3.2 percent, after falling nearly 3 percent in the past two quarters, reflecting the positive performance of construction and production of capital goods.
Private consumption expanded for the tenth straight quarter, rising 0.3 percent, the same rate as in the first quarter, while government consumption dropped 1 percent. The external sector’s contribution was negative overall for GDP growth, as exports dropped for a second quarter and imports rose 1 percent.
“We maintain our annual GDP growth forecast for 2019 at 1.0 percent, above the consensus of 0.8 percent. Our forecast embeds some relatively optimistic expectations for a gradual pickup in activity during H2 19”, said Barclays.
Most sentiment indicators began to rebound in July, coinciding with the first-round approval of a strong pension reform bill in the Lower House. Furthermore, the government had announced the release of FGTS funds to workers beginning in September that might total BRL 42 billion over the next 12 months, aiming to stimulate consumption temporarily.
“The government estimates the measure could add 0.35pp to GDP growth in 12 months, although its effect may not be large this year, as it will be concentrated in Q4 19 and Q1 20”, added Barclays.
