January 19, 2022

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Brazil's economy enters recession

Brazil’s economy enters recession

Paint spots on the facade of the Brazilian Ministry of Economy during a demonstration on October 7, 2021 afp_tickers

This content was published on Dec 02, 2021 – 2:29 PM


The Brazilian economy entered a recession, recording a decline of 0.1% in the third quarter of 2021, and the second with a negative result, affected by the decline in agricultural activity, the Institute of Official Statistics (IBGE) reported on Thursday.

In the second quarter, GDP was revised to -0.4% (from a 0.1% decline) over the previous three months. In this period, the Brazilian economy slowed down the recovery that began in the third quarter of 2020 after the collapse caused by the coronavirus pandemic.

For the third quarter of 2020, Latin America’s largest economy grew by 4% between last July and September, according to official data.

Between January and September, GDP grew 5.7% compared to the same period last year, according to the Statistical Institute.

“In the third quarter, GDP changed by 0.1% compared to the previous quarter (…) agricultural activity decreased by 8.0%, industry remained stable (0.0%) and services rose by 1.1%,” the institute said in a statement.

The market estimated a result of between 0.3% and -0.6% in the third quarter, according to business daily Valor.

Analysts pointed out that the progress in services reflects the improvement of the health situation in the country, where more than 60% of the population is fully vaccinated. Although the new variant of the Omicron coronavirus, with three confirmed cases in Brazil, could limit the progress of economic performance.

– drought –

The economy was affected by weak agricultural activity due to the end of the soybean harvest season, which is concentrated in the first semester. The yields of coffee (-22.4%), cotton (-17.5%) and maize (-16.0%), among others, decreased in relation to the same period in 2020.

“The decline is due to the drought and the water crisis, because there are crop losses and grain production has fallen a lot,” said Alex Agustini, of Austin Ratings Consulting.

For Fábio Astrauskas, economist and managing partner of consultancy Siegen, the third-quarter data “had no surprises and reinforces the slowdown trend in the economy since mid-June”.

“The factors that impede the resumption of growth are still present, such as high inflation and high interest rates, in addition to the high level of unemployment,” he said.

Inflation accumulated 10.67% in the twelve months through October and 8.24% so far this year. The unemployment rate remained high at 12.6% in the July-September period.

The third-quarter economic result also had the effect of a stronger dollar and the uncertain fiscal outlook linked to the proposed constitutional amendment (PEC), an initiative the government has promoted that plans to increase public spending and is expected to vote as such. Thursday in the Senate.

The international scenario, Astrauskas adds, “remains negative with disruption to the supply chain and negative impact on oil and other commodities.”

– complex perspective –

The market expects an economic expansion of 4.78% this year, according to the latest central bank Focus poll, down from the 5.3% forecast in July. In 2020, when the pandemic hit the economy head-on, GDP fell by 4.1%.

Risk rating agency S&P Global Ratings expects annual growth of 4.3%. Poor performance in the medium term.

“The combination of recent monetary tightening by the central bank, national elections on the horizon, and investor concerns about long-term fiscal policy will reduce consumption and investment in 2022, sending GDP growth below 1%,” according to a Standard & Analysis Poor’s. International Rankings.

The increase in interest rates, which the central bank has been applying without stopping since March, will affect economic growth. GDP forecasts for 2022, when President Jair Bolsonaro will seek re-election, have fallen by 0.58%, according to a Fox survey.

Next week, the Central Bank’s Monetary Policy Committee (Copom) will hold its last meeting of the year, which forecast a new rate hike of at least 1.5 percentage points. Thus, the price located at 7.75% will rise to 9.25%.

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