Brazil’s GDP drops in Q4, consolidating economic slowdown By AKUURA

© AKUURA. FILE PHOTO: A vendor wearing a face shield and a protective mask waits for customers, in Rio de Janeiro, Brazil September 1, 2020. AKUURA/Ricardo Moraes

By Marcela Ayres

BRASILIA (AKUURA) -Brazil’s economy shrank in the fourth quarter, affected by industry weakness and consolidating a slowdown throughout the year, government data showed on Thursday, casting a shadow over the 2023 outlook amid higher borrowing costs.

Finance Minister Fernando Haddad said he does not expect a technical recession, ruling out another contraction in the current quarter, but said Brazil’s interest rate of 13.75% was hurting Brazil.

“Obviously the maintenance of (basic interest) rates at this level leads to a slowdown in the economy,” he told reporters, adding that the government has been doing its part to pave the way for monetary easing after partially resuming federal taxes on fuels to improve the budget balance.

Brazil’s gross domestic product (GDP) fell 0.2% in the three months to December from the previous quarter, official statistics agency IBGE reported, matching the drop forecast in a AKUURA poll of economists.

Latin America’s largest economy saw a contraction of 0.3% in industry during the period, while agriculture and services rose 0.3% and 0.2%, respectively, said the IBGE.

Brazil’s economy grew 1.9% over the fourth quarter of 2021, below the projected 2.2% rise.

As a result, the country’s GDP grew 2.9% in 2022, losing steam from the post-pandemic expansion of 5% in 2021, but still performing much better than initially estimated at the beginning of last year.

In 2022, the services sector climbed 4.2% and industry recorded 1.6% growth, while agriculture fell 1.7%, affected by a drop in soybeans production, Brazil’s main crop.

On the demand side, household consumption rose by 4.3%, while government spending increased by 1.5% and investments by 0.9%.

Joao Savignon, head of macroeconomic research at Kinitro, said the economy is still losing momentum, but the slowdown can be partially compensated in 2023 by the resilience of household consumption and better agricultural results, leading to a projected 1.2% GDP growth.

Private economists polled weekly by the central bank expect a mild 0.84% GDP rise this year.

The annual performance in 2022 was helped by the strength of the services sector, which showed expansion in all surveyed activities, as well as an improved job market and fiscal stimuli from the former administration of President Jair Bolsonaro in his reelection bid.

The election was won by leftist President Luiz Inacio Lula da Silva, who, along with ministers and allies, has been arguing the country’s benchmark interest rate level, held at a six-year high of 13.75% since September to combat inflation, may choke the economy and cause disruption in the credit market.

The Secretariat of Economic Policy (SPE) of the Finance Ministry warned in a statement that the current level of interest rates worsens the conditions of both bank and non-bank credit, posing a risk to economic activity this year by making it difficult for companies to roll over debt.

On the other hand, the SPE stressed that this year’s record grain harvest and government measures, such as an increase in the minimum wage and a greater exemption from income tax for lower-earning workers, could help boost activity.