A pickup in household consumption and an improvement in investment kicked the economic recovery into a higher gear in Q3. Low interest rates, recovering business sentiment and stronger dynamics in the labor market are buttressing activity. Leading data for Q4, moreover, continues to point towards a steadily improving economy. The manufacturing PMI hit a multiyear
high in November, and both consumer and business confidence rose in the same month. While the economy is finally growing after the worst recession in its modern history, many challenges lie ahead, and severe macroeconomic imbalances need to be addressed. The government is
embroiled in a last-ditch effort to pass a watered-down version of the pension reform bill before the end of the year—a measure that was first presented almost a year ago. The bill needs a three-fifths supermajority to pass parliament, and it is uncertain if President Michel Temer has the
support needed; the window for economic reforms in the country is quickly closing ahead of the October 2018 elections.
Low interest rates, improving confidence and historically-low inflation should fuel an acceleration in growth next year. Structural reforms, however, are key to a sustainable recovery and the reversal of the untenable level of public debt. FocusEconomics see the economy growing 2.4% in 2018,
which is up 0.1 percentage points from last month’s forecast. In 2019, growth is seen edging up to 2.5%.
Inflation edged up from the over one-decade low of 2.5% in September to 2.7% in October. Our panel expects inflation to rise modestly next year amid higher commodities prices and firmer economic growth. Inflation is seen ending 2018 at 4.0% and 2019 at 4.1%.
REAL SECTOR | Economic recovery takes off in Q3 Recently released GDP data confirmed that the long-awaited recovery has taken off in the crippled Brazilian economy. GDP rose 1.4% annually in Q3, the largest expansion since Q1 2014. The result followed Q2’s revised 0.4% increase (previously reported: +0.3% year-on-year), which had marked the first positive reading in over three years. The figure, which slightly exceeded analysts’ projections of a 1.3% increase, is a positive sign for the Brazilian economy; the economy is coming out of the worst recession in the country’s recent history. It remains to be seen, however, if a strong recovery can take hold, as political uncertainty in the run-up to the 2018 elections is high, and the country is faced with severe macroeconomic imbalances that need to be addressed.
Q3’s acceleration was driven chiefly by improved dynamics in the domestic economy. Household spending grew 2.2% annually in Q3, the best reading since Q4 2014 (Q2: +0.6% yoy). The government’s decision to allow workers to make early withdrawals from an employee severance fund in Q2 likely continued to shore up spending, along with an improving labor market. In addition, the steep contraction in fixed investment waned noticeably in Q3. Fixed investment fell a moderate 0.5%, notably above Q2’s 6.7% decline, as low interest rates, improving business confidence, and efforts to privatize airports and highways paid off. Meanwhile, government consumption fell 0.6%
in Q3 (Q2: -0.8% yoy).
On the external side, improving demand, higher commodities prices and robust agricultural output boosted overseas sales in the third quarter. Exports grew at a robust pace of 7.6% annually in Q3 (Q2: +2.5% yoy), the best result since Q1 2016. Imports also turned around, reflecting resurging domestic
demand (Q3: +5.7% yoy; Q2: -3.2% yoy).
On a quarterly basis, GDP expanded a seasonally-adjusted 0.1%, below Q2’s 0.7% quarter-on-quarter rise. All-in-all, the third quarter GDP release signals that the Brazilian economy has embarked on a firm recovery path. Given the severity of the recession and the number of challenges still facing the economy, however, the recovery is likely to be unspectacular overall. Amid a highly turbulent political scene and upcoming elections, several structural reforms still need to be passed
to correct macroeconomic imbalances and put government finances on a stronger path.
Our panel of analysts sees the economy growing 2.4% next year, which is up 0.1 percentage points from last month’s forecast. For 2019, the panel projects that growth will accelerate to 2.5%.
REAL SECTOR | Economic activity rebounds in September In September, economic activity rose 0.4% 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 contrasted August’s 0.4% decrease and overshot market analysts’ expectations of a softer 0.3% rise.
On an annual basis, economic activity rose 1.3% in September, which was below August’s revised 1.7% expansion (previously reported: +1.6% year-onyear). Meanwhile, the trend continued to improve and the annual average variation in economic activity came in at minus 0.6%, which was up from August’s minus 1.0% and marked the best reading since December 2014.
REAL SECTOR | Manufacturing PMI rises to multi-year high in Novembe Conditions in Brazil’s manufacturing sector improved in November, reaffirming that the economic recovery is gaining steam. The Markit manufacturing
Purchasing Managers’ Index (PMI) rose from October’s 51.2 to 53.5, the best reading in 81-months As a result, the PMI lies further above the crucial 50-threshold that separates expansion from contraction in business conditions in the manufacturing sector.
According to IHS Markit, the improvement in the manufacturing sector was underpinned by a strong rise in new orders, which led to increased output. Firms also added jobs for a second consecutive month, however, the rate of job creation was moderate overall. Higher prices for commodities led to
a surge in cost inflation in November, while business sentiment was upbeat thanks to the improving economic backdrop and new client wins.
REAL SECTOR | Retail sales rebound in September Retail sales (excluding cars and construction) rose 0.5% from the previous month in seasonally-adjusted terms in September, which contrasted August’s 0.4% drops. The result overshot market analysts’ expectations of a 0.4% rise.
Looking at September’s result in detail, rising sales were seen for five of the eight components of the index, with supermarket sales driving the uptick.
On an annual basis, retail sales increased 6.4% in September, which was notably above August’s 3.6% rise. As a result, the trend rose and the annual average variation in retail sales came in at minus 0.6% in September, above August’s minus 1.6%.
Panelists participating in this month’s LatinFocus Consensus Forecast expect retail sales to increase 3.0% in 2018, which is unchanged from last month’s forecast. For 2019, the panel sees retail sales growing 3.7%.
OUTLOOK | Consumer confidence hits six-month high in November. The consumer confidence index published by the Getulio Vargas Foundation (FGV, Fundaçao Getúlio Vargas) increased a seasonally-adjusted 3.7% from the previous month in November. The index rose from October’s 83.7 to 86.8.
The improvement was driven by consumers’ less pessimistic views regarding both 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 2.4% in 2018, which is up 0.1 percentage points from last month’s estimate. For 2019, the panel sees private consumption rising 2.5%.
OUTLOOK | Business confidence improves in November Business sentiment in Brazil continued to climb in November, as it recovers from the lows of mid-2015. The Getulio Vargas Foundation’s (FGV, Fundaçao Getúlio Vargas) business confidence index increased a seasonally-adjusted
3.0% from the previous month, rising to 98.3 points from 95.4 points in October. Nevertheless, the index remains below the 100-point threshold that separates pessimism from optimism among businesses. According to FGV, the rise was driven by firms’ less pessimistic outlooks for the current and future economic situations.
Panelists participating in the LatinFocus Consensus Forecast see fixed investment rising 4.6% in 2018, which is unchanged from last month’s forecast. In 2019, participants expect fixed investment to gain steam and record a notable 5.6% expansion.
MONETARY SECTOR | Inflation rises from multi-year low in October Consumer prices in October rose 0.42% over the previous month, which was above September’s 0.16% rise. October’s reading undershot analysts’ forecasts of a more pronounced 0.47% rise. Higher prices were recorded for
housing, transportation and three of the other seven categories of the index.
Inflation rose slightly to 2.7% in October, after coming in at an 18-year low of 2.5% in September. Historically low price pressures have been good news for the battered economy and allowed the Central Bank space to pursue an easing cycle to support a recovery.
In a scenario based upon market expectations, the Central Bank sees inflation ending 2018 at 4.4%. FocusEconomics participants see inflation closing 2018 at 4.0%, which is unchanged from last month’s forecast. For 2019, the panel expects inflation to come in at 4.1%.
EXTERNAL SECTOR | Current account deficit narrows in October Brazil’s current account balance came in at a deficit of USD 343 million in October, which was notably below the USD 3.3 billion deficit recorded in October 2016. The result also significantly undershot market analysts’
expectations of a USD 1.0 billion deficit.
The trade surplus came in at USD 5.2 billion in October, which was above October 2016’s USD 2.3 billion. Exports soared 37.6% over the same month last year, while reviving domestic demand cause imports to grow a buoyant 20.2% annually. Foreign direct investment was also healthy in October and came in at USD 8.2 billion, likely helped by the stabilizing economic backdrop.
The current account has improved notably over the past year, which is most clearly seen when examining the 12-month accumulative current account deficit. This deficit narrowed to USD 9.6 billion in October from USD 12.6 billion in September, the lowest shortfall since March 2008. October’s result marked a deficit of approximately 0.5% of GDP.
FocusEconomics participants expect a current account deficit of 1.3% of GDP in 2018. For 2019, the panel sees the deficit worsening to 1.6% of GDP.
FUENTE: Enviado por Focus Economics - https://www.focus-economics.com/ Desde Barcelona España