A mediocre recovery

BRAZIL ECONOMICS - Report 04 Jun 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

In the first quarter of 2018, GDP grew by only 0.4%, and it only takes a quick glance at the behavior of the most important components on the aggregate supply and demand sides to conclude that even without considering the effects of the truckers’ strike, growth in 2018 will be significantly less than 2%. The 0.4% growth was nearly all due to agriculture, which expanded at an annualized rate of 6%, in contrast with stability of industry; contraction of civil construction (-2% annualized); and growth of services at an annualized rate of only 0.5%. Gross fixed capital formation expanded by 0.6%, leaving the investment rate stable near the lowest levels in history, and the big hope for stronger recovery – household consumption – grew by just 0.5%. These results leave a carry-over to the rest of the year of 0.9%, meaning that hypothetical growth of 2% in 2018 would require GDP to expand by an annualized pace of 2.8% in the remaining quarters. The effects of the strike make that performance impossible in the second quarter, and there are no perspectives for improvement, either from the aggregate supply or demand side.

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