Brazil sees Upturn in economy for the first time since 2015

The first three months of 2017 saw Brazil emerging from its longest recession in the country’s history with a GDP increase of 1 per cent after two consecutive years of negative growth, during which the Brazilian economy shrank by almost 8%.(6)

2017 saw inflation falling to its lowest level since 1998, which together with lower interest rates has paved the way for a slow and steady recovery of the Brazilian economy.

Gross domestic product expanded 0.2 percent from the first quarter and 0.3 percent from a year earlier. Economists had expected GDP to grow 0.1 percent on a quarterly basis and remain flat from the year before, according to a Reuters poll.

However, Finance Minister Henrique Meirelles said Brazil’s economy is now expected to grow 3.0 percent in 2018, up from 2 per cent previously, (2) with the World Bank revising its economic growth estimates by 0.7 points to 1% in 2107 and by 0.2 points to 2% in 2018.(1)

The upturn which continued throughout the year, saw December consumer prices rising 0.44% over the previous month, above November’s 0.28% rise, largely driven by higher prices for transportation, along with food and beverage products.

Although inflation ended 2017 at 2.9% in December, a notch up from November’s 2.8%, it was a considerable improvement on the 6.3% of 2016. The reading for 2017 marked the lowest annual inflation rate since 1998. Prices pressures fell last year due to a solid performance in the real economy and a battered domestic economy. As a result, the Central Bank missed its target of 4.5% plus or minus 1.5 percentage points and will have to publish an open letter explaining why, according to Brazilian law. Inflation averaged 3.5% in 2017, well below 2016’s average of 8.7%. (5)

With some 13 million unemployed after the worst downturn on record in 2015 and 2016, the strength of the recovery will play a major role in the 2018 presidential election.  Years of recession and corruption scandal have left Brazilians disillusioned with traditional politicians, giving rise to alternative candidates on the left and right who will potentially vie with more market-friendly centrists for the country’s top job. (3)

According to Meirelles, the Brazilian government upgraded its forecasts for the country’s economic growth in 2017 and 2018, amid “increased confidence” among consumers and companies, which had a favourable impact on spending.

The Brazilian economic growth should reach 3.0% in 2018, higher than the previous forecast of 2.0%.

The new projection for 2018 growth is higher than the 2.5% expansion used as a benchmark for the 2018 budget. Analysts surveyed by the Brazilian central bank estimate a 2.6% growth for 2018, (4)   heralding a better year for the country.

 

References:

https://www.theguardian.com/business/2018/jan/09/world-bank-  issues-warnings-on-interest-rates-and-inflation)

2   https://www.cnbc.com/2017/09/01/reuters-america-update-2-brazil-consumers-lead-stronger-than-expected-quarterly-growth.html

https://www.bloomberg.com/news/articles/2017-11-22/meet-the-optimists-forecasting-brazil-will-bounce-back-and-fast

http://markets.businessinsider.com/news/interestrates/BRAZIL-Government-Raises-Economic-Growth-Forecast-For-2017-And-2018-1011612295

5 https://www.focus-economics.com/countries/brazil/news/inflation/inflation-falls-to-lowest-level-since-1998-in-2017

http://www.bbc.com/news/world-latin-america-40120364

 

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