Economy

Why the Brazilian economy is slowing down

Underwhelming Q3 growth figures indicate a slowdown in 2023, amid persistently high interest rates and a gloomy outlook globally

Why the Brazilian economy is slowing down
Photo: Dado Photos/Shutterstock

Brazil’s Q3 GDP report underscored the delicate balance facing the Central Bank. Its aggressive monetary tightening process has effectively helped tame inflation but, as credit becomes more expensive, it could be detrimental to the services sector and family consumption — the backbone of the country’s economy.

The results came in well below market expectations of 0.6 percent, and suggest that growth will be hard to attain not only in Q4, but also next year.

Between July and September, the Brazilian economy grew by 0.4 percent, with GDP totaling BRL 2.54 trillion (USD 489 billion) in current values, 4.5 percent above pre-pandemic levels. Year-on-year, the economy expanded by 3.6 percent.

As expected, the services sector anchored Q3 growth, expanding by 1.1 percent in the quarter. Corresponding to 70 percent of the Brazilian economy, its good performance says a lot about the health of the overall GDP.

Segments that stood out were communications (3.6 percent), which benefited from an increase in software development and internet services, and financial and insurance activities (1.5 percent). Real estate activities, as well as food and lodging, also grew by 1.4 percent.

The latter segment has been recovering for the last couple of months thanks to the reopening of the economy following the worst moments of Covid. Among all services groups, only retail declined in Q3 (-0.1 percent).

“This result reflects the reallocation of household consumption from goods to services,” said Rebeca Palis, coordinator of national accounts at IBGE, Brazil’s official statistics bureau.

Industry, with a 0.8 percent bump, outperformed expectations thanks to the construction sector, up by 1.1 percent in the quarter. 

The construction sector has been showing positive growth for four consecutive quarters and recently almost doubled its expectation for 2022 growth to 6 percent, supported by high demand driven by the improvement in the job market.

In addition, in Q3, another industry highlight was electricity, gas, water, and sewage (0.6 percent), a segment that benefited from the reduction in thermoelectric energy rates. 

After hydroelectric reservoirs recovered from a 2021 drought, which nearly tipped Brazil into an energy crisis, utility prices have eased and helped the sector’s year-on-year performance during the last quarter.

The area in which analysts got it most wrong was agribusiness. The market had expected growth for the sector in Q3, supported by better harvests of crops previously hurt by the weather such as corn — but activity actually fell by...

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