Brazil’s recession not yet bottomed

Growth continues to disappoint as the recession has deepened its grip on all sectors of the economy. Today's GDP prints for the third quarter showed economic activity contracted by a worse-than-expected -1.7% q/q in Q3, (vs consensus expectations of -1.2%). The Q2 number was revised lower to -2.1% q/q, (vs the earlier -1.9% print released in August).

The biggest drags on growth came from investments and private consumptions, while net exports continued to remain the only positive source of growth due to a weaker BRL.

"We expect investments and private consumption to continue to remain subdued in the quarters ahead as higher rates, the incipient weakening of the labour market, low confidence and worsened terms of trades are pulling the break on activity in these sectors",says Nordea Bank.

The lower than expected GDP print today and the downward revision of Q2 GDP growth lower the expectations for growth this and next year . Economic activity is likely to start recover on only a slow pace towards end 2016, and to pick up somewhat in 2017 as a stabilisation of commodity prices and monetary policy easing will help.

"We believe today's number will increase the pressure on the BRL and amplify the vulnerability of the currency. We expect weakening pressure on the BRL to persist in the near term as weak domestic fundamentals, risks of more rating downgrades, low commodity prices and the approaching Fed hike will keep it under pressure", added Nordea Bank.