Economic Activity: The Real Deal

BRAZIL ECONOMICS - Report 17 Feb 2020 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

Economic activity finished 2019 with another disappointing result: the IBC-Br fell by 0.3% in December, after decreasing by 0.1% in November. Despite these clearly negative results, the economy expanded by 0.5% in the fourth quarter, slightly behind the figure for the third quarter (0.6%). We do not foresee any risk that the recovery will be aborted. Our expectation is that GDP expanded by 1.1% in 2019, just below the rates in 2017 and 2018, and a bit lower than suggested by the IBC-Br for the fourth quarter last year. However, based in the information available so far, it is less likely that growth in 2020 will exceed 2%.

The frustrating results attained in 2017 and 2018 were due to the absence of a rebound in gross fixed capital formation, and there still are no upbeat signs in this respect. Our estimate is that investments contracted by 3.5% in the last quarter of 2019. Both apparent consumption of capital goods (the sum of domestic and imported capital goods minus exported capital goods) and output of construction materials probably receded in relation to the third quarter.

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