What Brazil’s Q2 GDP numbers tell us. And what they don’t

Latin America’s largest economy has been outperforming forecasts since the beginning of the year. In Q2 2022, Brazil’s GDP grew by 1.2 percent — exceeding analysts’ 0.9-percent prediction. 

The positive numbers are the result of a combination of extraordinary factors that heated up the economy, including government aid measures, commodity price shocks, and high savings levels driven by the pandemic.

Brazil’s official statistics agency IBGE also revised Q1 GDP growth from 1 to 1.1 percent. In total, gross domestic product reached BRL 2.4 trillion (USD 461 billion), against BRL 2.2 trillion in Q1, in current values.

The latest GDP reading shows that the Jair Bolsonaro administration’s push to boost social spending (while poking holes in the federal spending cap) and reduce fuel taxes have indeed helped the economy in the short term.

However, the 1.2-percent Q2 growth does not mean Brazil is out of the woods. The global slowdown and a fragile fiscal outlook may push the Brazilian economy into contraction by Q4.

Looking closely on the demand side of things, growth was driven by consumer spending, which behaved above what banks and analysts had predicted — rising 2.6 percent in the quarter and 5.3 percent year-on-year. 

Government spending and investments (measured by gross capital growth) also increased: 0.7 and 1.5 percent from a year earlier, but below market expectations.

The external sector, on the other hand, made a negative contribution.

On the supply side, the services sector was the main driving force in the country between March and June.

Normally accounting for 70 percent of the economy, services brought positive surprises for economists. Growth reached 4.5 percent from a year prior — against expectations of around 3.5 percent. The recovery of the labor market (which is fed back by the growth of the services sector, the biggest job-creating segment) and government stimulus are playing an important...