Brazil’s Gross Domestic Product (GDP) grew by 0.9% in the second quarter of this year compared to the previous three months. The data was disclosed by the Brazilian Institute of Geography and Statistics (IBGE) and it led analysts to revise their projections for 2023 upwards.
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Above the Expectations
This was the second consecutive quarter in which the economy presented results above expectations, despite the number representing a slowdown in relation to the growth recorded in the first three months of this year (1.8%).
In relation to the second quarter of 2022, the increase was 3.4%. According to the Bloomberg agency, analysts from financial institutions and consultancies estimated an increase of 0.4% compared to the first quarter and 2.7% compared to the same period last year.
Financial Market
As a response to the good results, the stock market registered a strong rise, and the dollar fell.
Economy Pushed by Services and Extractive Industry
From the point of view of production, services and the extractive industry (oil, gas and iron ore) account for the good performance in the second quarter of the year — in the first months of this year, GDP was driven by agribusiness. According to IBGE, the increase is 0.9% in industry and 0.6% in services.
Readjusting Forecasts
Based on the positive results, economists increased their forecast for this year’s GDP by 0.25 percentage points, according to a report released by the Central Bank (BC). The Focus Bulletin points to an expectation of 2.56% for the growth of the Brazilian economy. Last week, the index was at 2.31%. On the other hand, the outlook for 2024 worsened, falling from 1.33% to 1.32%, and the forecasts for 2025 (1.90%) and 2026 (2%) remained stable.
The 2024 Budget and the New Fiscal Framework
Despite the positive news with the GDP growing at an unexpected pace, the new fiscal framework recently approved by Congress generated skepticism about the ability of economic authorities to maintain or increase such results, especially after the delivery of the 2024 Budget. The main challenge is to keep the promise of raising an additional R$ 168 billion to achieve zero fiscal deficit next year. The government will have to seek support from the Legislature to approve a broad package of measures to increase revenue.
Analysis:
Government and institutional stability in Brazil depends deeply on the economic progress. Lula’s third mandate, which faces strong opposition, particularly in the Federal Chamber and in some sectors of society (agribusiness, financial market, military, middle class etc.), could be hampered if it does not present reasonable economic results. For the moment, the GDP results have strengthened the central authorities, but the growth of government debts and difficulties approving measures that could expand revenue to respond to this debt growth could create serious obstacles.
