Brazil’s economy continued to grow at a robust pace in the second quarter, driven by strong household expenditure and resilient private consumption. According to a Reuters poll, the country’s gross domestic product (GDP) is expected to show a 0.9% expansion compared to the first quarter, with an annual growth rate of 2.7%.
The median forecast of 18 analysts surveyed between August 28 and September 2 suggests that household spending remained a key driver of growth, supported by a strong labor market and rising real wages. Public spending also contributed to the expansion, with an increase in social benefit payments and aid related to floods in April and May.
However, higher imports of goods and services likely weighed on the country’s growth, surpassing less-dynamic exports at the start of 2024 due to a strong foreign exchange rate. Barclays economists noted that the external sector was likely a drag on growth due to higher imports.
Santander analysts reported a 7.8% quarterly rise in imports versus a 1.3% gain in exports, indicating a significant trade deficit. Industrial production, including mining, is expected to have expanded by 1.2%, partly offset by a 2.4% contraction in the farm sector.
The expected annual growth rate of 2.7% would be the highest since the same period in 2023, following the inauguration of President Luiz Inacio Lula da Silva. J.P. Morgan economists noted that Brazil’s growth is particularly surprising, outperforming other countries in the region.
However, some deceleration is expected in the coming quarters, as both monetary and fiscal policies are likely to be restrictive for growth. Last week, President Lula signaled acceptance of a potential rate hike, while the finance ministry vowed to fulfill its promise of fiscal restraint by year-end.
