World Economy

Brazil Recovery Brittle in Q1

Economists forecast Q2 annual GDP growth will accelerate to 2.2 percent.Economists forecast Q2 annual GDP growth will accelerate to 2.2 percent.

The Brazilian economy likely expanded for a fifth straight quarter in the first three months of 2018, a Reuters poll of economists showed, suggesting fears of a slowdown may have been overblown.

Forecasters largely expected economic growth to accelerate in coming quarters, decisively turning the page on the nation’s deepest recession in decades.

No forecaster expected a contraction, despite a string of underwhelming economic indicators, from retail sales and industrial output to services activity. A central bank economic indicator that closely tracks GDP fell 0.13% in the first quarter.

“The economic recovery is brittle, but it’s still a recovery. Things will continue to look better going forward, but slowly,” said Jason Vieira, an economist at Infinity Asset.

The report, set to be released on May 30, is likely to show first-quarter GDP grew 1.3% from a year earlier, according to the median of 29 estimates. That would be the slowest pace since the second quarter of 2017.

Still, growth is bound to accelerate in the second quarter, 19 of 22 forecasters said, suggesting the recovery remains on track. Policymakers have repeatedly stressed that investments and durable goods consumption, two leading indicators, have expanded robustly even as non-durable goods spending weakened.

Record-low interest rates have helped to revive Latin America’s largest economy after it contracted nearly 8% in the 2015-16 period, but double-digit unemployment rates and idle industrial capacity have kept a lid on the rebound.

All 20 economists who responded to an additional question expected consumer spending to expand, boosted by low inflation and cheaper credit. Sixteen of 21 said capital spending would grow for a fourth straight quarter despite uncertainty about October elections, the most hard-to-predict in decades.

The poll results painted a largely optimistic picture for economic growth even after signs of a wobbly start to the year, which led the government this week to cut its estimate for 2018 GDP growth to 2.5% from 2.97%.

Economists at Itau Unibanco Holding SA, Brazil’s largest private-sector lender, forecast second-quarter annual GDP growth will accelerate to 2.2%, which would mark the fastest expansion since the first quarter of 2014.

Still, that could come under question if an ongoing truckers strike that crippled swathes of the economy keeps up. Automakers association Anfavea announced plans for all car production to halt starting Friday, with the sector accounting for roughly 25% of Brazil’s industrial output alone.


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