Brazil’s government says the country’s economy grew in 2017 for the first time in three years, aided by a strong performance in the agricultural sector reported.
The government’s IBGE statistics bureau said Thursday that the country’s gross domestic product increased 1% last year after two consecutive contractions of 3.5% in 2015 and 2016, news outlets.
IBGE said that the 13% growth in the agricultural sector was a major driving force in the GDP increase. The corn crop increased 55.2% while the soybean crop expanded 19.4%.
Latin America’s largest economy grew in every quarter of the year, according to official data which provided a welcome spot of good economic news following the shelving of a key reform and downgrade to its credit rating last month. Brazilian industry grew 0.5% compared to the third quarter, and 2.7% compared to the same quarter of 2016, AP said.
The last time industry expanded was in 2013, when it saw 2.2% growth. Brazil’s financial markets expect to see continued growth of 2.89% in 2018 and 3% in 2019, said IBGE.
Thursday’s data may provide a breather to President Michel Temer’s troubled government, which last week buried plans to improve the country’s fiscal health with an overhaul of its pension system. In January the central bank said the 12-month budget deficit had reached 7.8% of GDP, and the pension move prompted Fitch to cut Brazil’s rating deeper into junk territory.
With Brazil facing one of its most unpredictable general elections in recent history in October, the crucial but unpopular task of straightening the generous pensions system will probably fall on the next president.
But the OECD warned this week “a comprehensive social security reform has become the most urgent element of fiscal adjustment,” adding Brazil’s pension system costs almost 12 of GDP.
Meanwhile, as conditions improve in Latin America and economic growth returns to the region, primarily because of higher commodity prices, the region’s banks will experience tremendous growth. This is because they are a good barometer of a nation’s economic health and offer considerable upside when the economies in which they operate grow.
One Latin American bank which is underappreciated is ready to return to growth is Brazilian banking heavyweight Itau Unibanco. Not only will it benefit from Brazil’s emerging economic recovery but South America’s positive economic outlook along with its own strengths will act as a powerful tailwind for growth.
