Weakness of gross fixed capital formation

BRAZIL ECONOMICS - Report 10 Sep 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The decline of gross fixed capital formation (GFCF) was the factor that caused the greatest disappointment in the announcement of the GDP numbers for the second quarter. Based on our monthly indicator of GFCF, it is clear that part of that result was due to the truckers’ strike. However, not only did the expansion in June not fully reclaim the territory lost in May, the indicators for July point to an additional setback. As known, the recovery of fixed capital investment is a force that, through its multiplier effect, tends to improve conditions in the labor market, which in turn stimulates growth of consumption. In light of this, we maintain our projection of mediocre GDP growth in 2018, of only 1%.

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