MercoPress. South Atlantic News Agency

Brazilian economy gradually picking up with growing confidence from investors

The economy has been recovering as the central bank implements an aggressive monetary easing cycle expected to bring loan costs to an all-time low this week.

Brazil’s economic recovery gained traction in the third quarter, supported by steady family consumption and a rebound in investment. GDP expanded 0.1% from the second quarter and 1.4% from the previous year, the national statistics agency said.

 The quarter-on-quarter number came in below economists’ expectations but that was largely due to a strong upward revision for the April-to-June period. Overall, the numbers raised the prospect of faster growth.

Brazil’s economy has been recovering from a deep recession as the central bank implements an aggressive monetary easing cycle that is expected to bring borrowing costs to an all-time low this week. Inflation remains well below the official target and unemployment is falling, which bodes well for domestic demand going forward.

“When we look at the breakdown, we have good news. Domestic demand was really strong,” Flavio Serrano, senior economist at Haitong Bank SA in Sao Paulo said. “Probably there will be good growth in the Brazilian economy next year.”

Investment rose 1.6%, its first positive reading in four years. That marked an important shift from prior quarters, when output was initially boosted by agriculture, then by family consumption driven by the freeing up of idle retirement and severance accounts. Families kept shopping even after that windfall faded, and consumption grew by 1.2% for two consecutive quarters.

The data encouraged Goldman Sachs to revise its growth forecast for this year to 1.1% from 0.9%. Yet a “substantial improvement” in credit conditions and the job market is required to sustain consumption in 2018, said Solange Srour, chief economist at ARX Investimentos.

Finance Minister Henrique Meirelles said the economy remains on a growth path, and highlighted that third-quarter GDP would have expanded 1.1% without a seasonal downturn of agriculture, which fell 3% in the period. The pick-up in investment reflects optimism about Brazil’s future, he said on his Twitter account.

Strong import figures in the third quarter were a surprise and reflected the increase in investments, according to economist Marco Maciel. “We imported a lot of capital goods and inputs for capital goods, so this fits perfectly with rebuilding potential capacity in Brazil,” Maciel said. “That’s very important, because if this keeps going in 2018, we’re going to have a very different GDP composition from 2017.”

Next year’s economic performance could have a relevant impact on the presidential race, with a stronger recovery boosting the chances of an establishment candidate, particularly that of Meirelles himself, said David Fleischer, professor emeritus at the University of Brasilia.