Growth accelerated notably in the last quarter of 2017, although it fell short of market expectations. It was led by strengthening household spending on the back of falling unemployment and low inflation and a turnaround in fixed investment. According to available indicators, the positive economic momentum seems to have carried over into the first quarter of this year. In January, the current account deficit narrowed year-on-year. Moreover, in February business confidence moved into optimistic territory for the first time since mid-2013, and the manufacturing PMI rose on the back
of solid domestic demand and job creation. However, in the same month, consumer confidence dipped, remaining deeply entrenched in pessimistic territory. The government’s decision to postpone the reform of the country’s generous pension system prompted Fitch Ratings to downgrade Brazil’s credit rating from BB to BB- in late February. Fitch, which also revised the outlook from stable to negative, cited the bulky government debt and troubled political environment as additional reasons for the downgrade.
Manageable inflation and improving labor market conditions should underpin consumer spending this year. A rebound in fixed investment is expected on the back of more favorable financing conditions due to monetary easing and rising business confidence. However, a marketunfriendly
outcome from October’s elections poses the main downward risk to the outlook. FocusEconomics panelists see the economy growing 2.5% in 2018, unchanged from last month’s forecast, and 2.7% in 2019.
Inflation came in at 2.8% in February (January: 2.9%). This year, inflation should remain under control, due to ample spare capacity in the economy. Our panel expects inflation to end 2018 at 3.8%, and 2019 at 4.1%.
REAL SECTOR | Growth jumps in Q4 Recently released GDP data confirmed that the recovery shifted into a higher gear in the final quarter of 2017. GDP rose 2.1% annually in Q4, the largest
expansion since Q1 2014. The result was above Q3’s 1.4% increase but was weaker than expected by market analysts. In the full year 2017, the economy grew a modest 1.0% (2016: -3.5%).
The acceleration in Q4 was driven chiefly by improved dynamics in the domestic economy. Household spending grew 2.6% annually, the best reading since Q4 2014 (Q3: +2.2% year-on-year), aided by an improving labor market and low inflation. Fixed investment grew for the first time since Q1 2014 (Q4: +3.8% yoy; Q3: -0.5% yoy). Business confidence improved notably in the quarter,
although remained in pessimism territory. Although the government has made some progress on economic reforms, it remains to be seen if these gains will hold given the highly turbulent political scene and the upcoming elections. Meanwhile, government consumption fell 0.4% in Q4 (Q3: -0.6% yoy). On the external side, soaring imports dented the external sector’s contribution.
Imports grew 8.1%, notably above Q3’s 5.7% expansion, reflecting the healthier state of the domestic economy. Exports grew at a robust pace of 9.1% annually in Q4 (Q3: +7.6% yoy), thanks to firmer commodity prices and a healthy global backdrop.
On a quarter-on-quarter basis, GDP expanded a seasonally-adjusted 0.1%, below Q3’s 0.2% quarter-on-quarter rise.
All-in-all, the fourth quarter GDP release signals that the Brazilian economy is on a firm, if lackluster, recovery path. Keeping the recovery on track will require a reform-minded president, however, and it is difficult to judge if the election set for next October will yield a market-friendly outcome.
Our panel of analysts sees the economy growing 2.5% next year, which is unchanged from last month’s forecast. For 2019, the panel projects that growth will accelerate to 2.7%.
REAL SECTOR | Economic activity expands at fastest pace in 10 months in December
In December, economic activity rose 1.4% from the previous month in seasonally-adjusted terms, according to the Central Bank’s monthly indicator for economic activity (IBC-Br, Indice de Atividade Economica do Banco Central). The result was notably above November’s revised 0.3% increase
(previously reported: +0.5% month-on-month) and overshot market analysts’ expectations of a softer 1.1% rise. Moreover, the reading marked the fastest growth since February 2017.
On an annual basis, economic activity rose 2.1% in December, which was below November’s revised 2.6% expansion (previously reported: +2.8% yearon- year). For the full year 2017, economic activity grew 1.0%, rebounding after four years of contraction (2017: -4.0%). The result confirms that the
economy is recovering after the deepest recession in its modern history. REAL SECTOR | Industrial production contracts in January
In January, industrial production contracted 2.4% over the previous month in seasonally-adjusted terms, contrasting the revised 3.1% increase (previously reported: +2.8% month-on-month) registered in December. The result marked the sharpest contraction since February 2016.
Behind the fall was a broad-based contraction in the production of consumer goods, intermediate goods and capital goods. In annual terms, however, industrial production rose 5.7% in January, which was above December’s 4.5% increase and marked an almost five-year high.
Annual average growth in industrial production was 2.7% in January, up from 2.4% in December and the best result since July 2011.
The analysts surveyed by FocusEconomics for this month’s LatinFocus Consensus Forecast see industrial production growing 3.9% in 2018, which is up 0.1 percentage points from last month’s estimate. In 2019, industrial output is expected to grow 3.5%. REAL SECTOR | Manufacturing PMI rises in February
Conditions in Brazil’s manufacturing sector strengthened in February according to the IHS Markit manufacturing Purchasing Managers’ Index (PMI), which rose from 51.2 in January to 53.2. As a result, the PMI moved further above the crucial 50-threshold that separates expansion from contraction in business conditions in the manufacturing sector, where it has been for seven
The rise in the index was attributed to an increase in new orders from domestic clients and the strongest pace of job creation in nearly seven years. In addition, output growth accelerated on the back of stronger domestic demand and improved expectations of future client demand, which more than offset weak overseas orders. Regarding prices, input cost inflation eased to a fourmonth
REAL SECTOR | Retail sales contract in December Retail sales (excluding cars and construction) fell 1.5% from the previous month in seasonally-adjusted terms in December, which contrasted November’s revised 1.0% increase (previously reported: +0.7% month-on-month).
Declines were seen nearly across the board, with only two of the eight components of the index seen growth in sales. A sharp drop in supermarket sales and sales of fuels largely drove the downturn.
On an annual basis, retail sales increased 3.3% in December, which wasnotably below Novemer’s 6.0% growth. For the full year 2017, retail sales rose 2.0%, a notable improvement to 2016’s 6.3% contraction.
Panelists participating in this month’s LatinFocus Consensus Forecast expect retail sales to increase 3.4% in 2018, which is up 0.3 percentage points from last month’s forecast. For 2019, the panel sees retail sales growing 3.6%.
OUTLOOK | Consumer confidence falls in February The consumer confidence index published by the Getulio Vargas Foundation (FGV, Fundaçao Getúlio Vargas) fell a seasonally-adjusted 1.6% from
the previous month in February. The index decreased from January’s over two-year high of 88.8 to 87.4. The deterioration was driven by consumers’ more pessimistic views regarding the current and future economic situations compared to the previous month.
The FGV confidence index spans a range from 1 to 200 points, where 100 points is considered neutral. Despite recent gains, the index still lies deep in pessimistic territory.
Panelists surveyed for this month’s LatinFocus report see private consumption 2.9% in 2018, which is up 0.1 percentage points from last month’s estimate. For 2019, the panel sees private consumption rising 3.0%.
OUTLOOK | Business confidence moves to optimistic territory in February for the first time in over four years Business sentiment in Brazil rose in February, moving into optimistic territory
for the first time since June 2013. The Getulio Vargas Foundation’s (FGV, Fundaçao Getúlio Vargas) business confidence index rose to 100.4 from January’s 99.4 points. The index thus moved above the 100-point threshold that separates pessimism from optimism among businesses. According to FGV, firms were more optimistic on the future economic situation.
However, they were more downbeat on the present economic situation. Panelists participating in the LatinFocus Consensus Forecast see fixed investment rising 4.9% in 2018, which is up 0.3 percentage points from last month’s forecast. In 2019, participants expect fixed investment to gain steam
and record a notable 6.3% expansion.
MONETARY SECTOR | Inflation edges down in February Consumer prices in February rose 0.32% over the previous month, above January’s 0.29% rise. February’s reading matched analysts’ forecast. Higher prices were mainly recorded for education.
Inflation came in at 2.8% in February, slightly below January’s 2.9%. Prices pressures are at a historic low in the country and below the Central Bank’s target of 4.5% plus or minus 1.5 percentage points. Annual average inflation fell to 3.1% in February, from 3.3% in January.
In a scenario based upon market expectations, the Central Bank sees inflation ending 2018 and 2019 at 4.2%. FocusEconomics participants see inflation closing 2018 at 3.8%, which is down 0.2 percentage points from last month’s forecast. For 2019, the panel expects inflation to come in at 4.1%.
EXTERNAL SECTOR | Current account deficit narrows considerably in January
Brazil’s current account balance came in at a deficit of USD 4.3 billion in January, a smaller gap than the USD 5.1 billion deficit recorded in January 2017.
The trade surplus came in at USD 2.8 billion in January, which was slightly above January 2017’s USD 2.7 billion surplus. Exports soared 13.8% over the same month of the previous year, while strengthening domestic demand cause imports to grow a buoyant 16.5% annually. Foreign direct investment came in at USD 6.5 billion.
The 12-month accumulative current account deficit improved in January. It narrowed to USD 9.0 billion from USD 9.8 billion in December. FocusEconomics participants expect a current account deficit of 1.2% of GDP in 2018. For 2019, the panel sees the deficit worsening to 1.7% of GDP.
FUENTE: https://www.focus-economics.com/ Focus Economics - Desde Barcelona España