Brazil’s Economy Surpasses Expectations in Q2, Boosting Full-Year Growth Prospects
Brazil’s GDP grew by 1.4% in Q2 2024, surpassing expectations, driven by strong services and industry sectors. Full-year growth projections are set to increase.
Bollywood Fever: Brazil‘s economy outperformed expectations in the second quarter of 2024, as robust performances in the services and industry sectors offset the negative impacts of deadly floods in the southern state of Rio Grande do Sul.
This stronger-than-expected growth has bolstered forecasts for a solid full-year economic performance.
According to the statistics agency IBGE, Brazil’s Gross Domestic Product (GDP) expanded by 1.4% in the three months ending June 30, accelerating from the revised 1.0% growth recorded in the first quarter.
This quarter-on-quarter growth exceeded the 0.9% increase anticipated in a Reuters poll of economists. On a year-on-year basis, GDP grew by 3.3%, surpassing the 2.7% rise projected by economists.
The surprisingly strong economic data has heightened expectations for the central bank’s next policy meeting on September 17-18. Interest rate futures now indicate a 40% probability of a 50 basis-point hike, compared to a 60% chance of a 25 basis-point increase.
Previously, there was a stronger consensus for a more modest 25 basis-point hike, especially after central bank chief Roberto Campos Neto emphasized the bank’s data-dependent approach and the likelihood of gradual adjustments if needed.
“Overall data suggest a resilient economy, and the exchange rate hasn’t recovered. In other words, two key conditions for a rate hike are met,” said Jose Francisco Goncalves, chief economist at Banco Fator, who expects a 25 basis-point increase. The central bank’s benchmark interest rate has remained at 10.50% since June.
On the supply side, the industrial sector was the primary driver of Brazil’s economic growth in the second quarter, expanding by 1.8% compared to the previous quarter.
The services sector, which is the backbone of Latin America‘s largest economy, also contributed positively with a 1.0% increase. However, the agricultural sector contracted by 2.3% during the same period.
On the demand side, fixed business investment saw a 2.1% increase, while household consumption, supported by a strong labor market, rose by 1.3%, matching the growth rate of government spending.
“The pace of growth is expected to remain strong, still driven by momentum from a heated labor market and better credit conditions for households and businesses compared to the previous year,” the Finance Ministry said in a statement. The ministry also indicated that it will revise its GDP projection upwards on September 17.
Finance Minister Fernando Haddad expressed optimism about the annual expansion, suggesting it could surpass 2.7% or 2.8%. In July, the government had maintained its GDP growth forecast at 2.5% for the year.
In May, devastating floods in Rio Grande do Sul state, which claimed more than 180 lives and displaced hundreds of thousands, led to a series of federal government aid measures totaling over 27 billion reais ($4.8 billion).
Many economists believe that this assistance helped mitigate the expected economic losses from the disaster.
As Brazil continues to demonstrate economic resilience, the outlook for 2024 remains promising, with key sectors showing strength and contributing to an upward revision of growth forecasts.
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