Brazil’s economy is expected to have grown at a solid pace in the second quarter

By Gabriel Burin

BUENOS AIRES (Reuters) – Brazil’s economy continued to grow at a solid pace in the last quarter compared with the first three months of the year, supported by household spending, a Reuters poll predicted.

But higher imports of goods and services likely weighed on the country’s growth after they outpaced less buoyant exports in early 2024 due to a strong exchange rate that has depreciated recently.

Second-quarter gross domestic product figures, scheduled for Tuesday, are forecast to show a 0.9 percent expansion from the January-March period, when the economy advanced 0.8 percent, according to the median forecast of 18 analysts polled in the period August 28-Sept. 2.

“We estimate Brazil’s economy grew by 0.9% quarter-on-quarter, 2.7% year-on-year … likely supported by resilient private consumption, benefiting in part from strong labor markets and rising real wages,” Barclays economists wrote in a report.

While public spending contributed to an increase in welfare payments as well as flood relief in April and May, “on the downside, the external sector was likely a drag on growth due to higher imports,” they said. they added.

In a report, Santander analysts noted a 7.8% quarterly increase in imports, compared to a much smaller 1.3% increase in exports. In the first quarter, imports and exports rose 6.5 percent and 0.2 percent, respectively, as Brazilians stocked up on foreign goods and services.

Meanwhile, on the supply side, total industrial production, including mining, should have risen 1.2 percent, an advance partially offset by a 2.4 percent contraction in the smaller agricultural sector, according to Santander.

On an annual basis, economic growth was seen in the survey at 2.7 percent in the second quarter, the highest since 3.5 percent in the same period in 2023, following the inauguration of President Luiz Inacio Lula da Silva early last year.

“Brazil’s growth is particularly surprising as this economy could grow by nearly 3% for the second consecutive year, an average rate that outpaces other countries in the region in 2023 and 2024,” JP Morgan economists wrote in a report.

“We think this strength will be extended in the third quarter, but we expect some deceleration going forward as, for the first time in a while, both monetary and fiscal policies will be restrictive to growth.”

Last week, Lula signaled he would accept a potential rate hike from his nominee to head the central bank for 2025-2028. At the same time, the finance ministry promised to fulfill its tax withholding promise by the end of the year.

(Reporting and surveys by Gabriel Burin; Editing by Ross Finley and Christina Fincher)