Better and better. The growth of the Brazilian economy reached 1.4% in the second quarter compared to the previous one. More than in the first quarter (which the statistics institute revised upwards to 1%) and much better than last year. “Once again, it is a positive surprise,” says Rodolfo Margato, economist at XP Bank. The performance was higher than the expectations of the market and the central bank.
“The resilience of the Brazilian economy never ceases to surprise. This time, it is not exports or agribusiness that are driving growth, but industry and services. Unemployment statistics are also at their lowest (Editor’s note: 6.9%), explains François Décamps, director of the mergers and acquisitions consultancy Caravel in São Paulo.
Good news for the government
In the capital Brasilia, Finance Minister Fernando Haddad welcomed the performance. “This will help increase budget revenues. It’s very good.”
The growth figure was announced at a time when the government is having great difficulty in achieving its own budgetary balance targets. The good performance of investments (+2.1%) also reflects business confidence, stresses the Minister of Planning, Simone Tebet. “We must pay attention to investments, because that is what will guarantee growth without inflation,” insists Fernando Haddad.
The steady increase in income has particularly boosted household consumption and has enabled “a solid second quarter for the Brazilian economy,” said the head of a services company. The increase in demand is fueled by income transfers, the increase in the minimum wage and the “solid” increase in household income, notes Goldman Sachs’ chief economist in Latin America, Alberto Ramos.
The other side of the coin
But more growth, especially in services, means more inflationary pressures. That is the other side of the coin. However, the increase in the price index already reached 4.5% in July (over 12 months), which is the ceiling defined by the inflation targeting policy. This should prompt the Brazilian central bank to tighten its monetary policy as early as this month, estimates Alberto Ramos, for the first time in more than two years. For its part, XP is already forecasting a tightening of 150 basis points by the end of the year, compared to the current rate of 10.5%.
But this should not spoil the growth party in the short term. The outlook is encouraging. “We are in a good dynamic that should bring growth in 2024 to around 3%. If the budgetary slippages were controlled, we could then have some nice surprises in 2025 too,” assures François Décamps.
