Home Economy News Brazil’s economy forecast to have picked up pace in first quarter

Brazil’s economy forecast to have picked up pace in first quarter

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By Gabriel Burin

BUENOS AIRES (Reuters) – Brazil’s economy is forecast to have picked up pace in the first quarter of the year, a Reuters poll showed, driven by an increase in federal outlays that added to stronger household spending and private investment.

The acceleration would mark a noticeable improvement over the second half of 2023, when the economy stalled as consumption and capital spending lagged under the effect of very high interest rates, which have since been lowered.

Gross domestic product (GDP) is forecast to have increased 0.8% in the January-March period compared with the final three months of last year, according to the median estimate of 25 economists polled May 29-June 3.

Compared to the first quarter of 2023, Latin America’s biggest economy is expected to have grown 2.2%, with estimates in a 1.1%-2.8% range. The data will be released on Tuesday.

Spending was supported in the period by a relatively healthy job market, as well as the positive impact of court-mandated compensation payments, and rising social benefits from President Luiz Inacio Lula da Silva’s government.

Morgan Stanley analysts wrote in a report they expected an expansion “pushed by private consumption, a product of the sharp fiscal impulse implemented late last year, due to the debt claim payments.”

Meanwhile, investment is forecast to reflect some improvement following a drop in foreign direct flows in 2023. But net international transactions likely subtracted from GDP, with growing deficits in service and factor accounts.

On the supply side, economic activity probably got a lift from a seasonal jump in agricultural production, particularly in Rio Grande do Sul, shortly before the start of catastrophic rains and floods that ravaged the southern state in April.

“For all 2024 we project GDP growth of 2.2%, adjusted for the negative effects on activity in Rio Grande do Sul that should start to appear in the data from May,” analysts at Kinitro wrote in a report.

“The gradual slowdown compared to last year will reflect mainly the fall in agriculture, a restrictive monetary policy and lower fiscal impulse”, the report added. Brazil ended 2023 with economic growth of 2.9%, defying gloomy forecasts.

It is now set to beat low initial projections again this year, despite the apparent downturn. Last month, the Finance Ministry hiked its estimate for economic growth to 2.5% from 2.2%, while also raising inflation forecasts for 2024 and 2025.

In contrast, this year’s expansion was seen at only 1.6% in January, amid a tug of war between the government and some lawmakers over which sector should pick up the tab for adjustments needed to meet ambitious budget goals.

(Reporting and polling by Gabriel Burin; Editing by Chizu Nomiyama)

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