GDP data may force Central Bank’s hand on interests

Brazil’s headline GDP result is a composite of positive and negative forces, where the details are just as important as the bottom line. While the economy posted a respectable overall growth of 2.9 percent in 2022, many analysts saw the glass as half-empty, with quarterly data fanning concerns of a looming recession. 

The end of Covid restrictions had boosted the economy at the start of 2022, but data suggests that the momentum may already be over. The pace of Brazil’s economic expansion fell in each of the last three quarters, culminating in a 0.2 percent contraction in Q4. 

In addition to the GDP report, unemployment figures released this week show that the number of employed Brazilians fell slightly in the last three months of 2022, and confidence levels dropped among business owners in the industry and services sectors. The latter is the backbone of the Brazilian economy.

Poor Q4 results were exacerbated by sectors heavily dependent on credit — such as retail, which contracted by 0.9 percent in the quarter. In no uncertain terms, members of the Luiz Inácio Lula da Silva government highlighted this aspect of economic data and renewed their quarrel with the Central Bank. 

“We are not working with the prospect of a recession but, obviously, maintaining interest rates at their current level triggers an economic slowdown,” Finance Minister Fernando Haddad said on Thursday. “Our challenge is to get the economy growing again. We will not allow [infrastructure] work to stop,” added his boss, President Lula. “Roads, bridges, railways. These projects...