Despite Deceleration, GDP Will Grow by 2.3% in 2023

BRAZIL ECONOMICS - Report 14 Aug 2023 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

After expanding by 1.9% in the first quarter, spurred by the 1.5 percentage point contribution of agriculture, GDP began decelerating in the second quarter. However, the result is better than expected, and reflects not only a still robust labor market, with growth of the occupied population in the second quarter (although with weaker performance of the formal sector), but also the strong retail sales, with growth due largely to stimulus measures, such as those given to the automotive sector.

Based on the latest numbers, we are raising our growth projection for 2023 to 2.3%. The effects of easing the SELIC rate, which should fall to 11.75% by year-end, will only be felt in 2024. Despite the interest rate cuts, monetary policy will remain in restrictive territory for a long period, so next year growth should be lower.
THE DATA – In the second quarter, real retail sales in the restricted definition (without automobiles, building materials and food wholesale) declined by 0.2% (+1.9% in the first quarter). The growth of 1.4% in supermarket/hypermarket sales (0.8% in the first three months) was not enough to prevent contraction of restricted retail sales.

In turn, retail sales in the augmented sense expanded by 1.7% (3.7% in the first quarter), mainly benefited by the subsidy on sales of new vehicles (up 8.5% in June, resulting in quarterly growth of 1.9%, versus 4.8% in the previous quarter). On the other hand, the consumption of imported goods partially recovered from the 8.9% decline in the first quarter, with a 8.7% increase in the second, as indicated by Secex data.

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