Brazil published its GDP results for 2018—and managed to frustrate analysts’ already low expectations. Last year, Latin America’s largest economy grew by only 1.1 percent—showing that uncertainty about the future continues to hover over the country—and that the path out of the slump will be much harder than stock market excitement may indicate. Despite a second straight year of growth—even if a narrow one—the official results were below the average forecast by the markets, of 1.3 percent.

In 2018, Brazilian GDP reached BRL 6.8 trillion. And GDP per capita rose 0.3 percent to BRL 32,474.

“These results show the market how urgent it is to approve the reforms, as well as indicate there is room to cut interest rates even further. But right now it is hard to predict what is going to happen by the end of the year, there’s very little predictability,” says Pablo Spyer, director at brokerage Mirae Asset.

Data shows activity is still lagging. Farming, which was the best performing activity in 2017, rose by only 0.1 percent, dragged down by weak results from important crops such as corn and sugar cane. The country’s industry grew by 0.6 percent, breaking a negative streak of four years—results were better because, for the 5th consecutive year, the construction sector shrank. Once again, the services sector was the best performer, expanding by 1.3 percent; all of its segments had a positive performance over the year.

An Austin Rating report places Brazil 40th among 42 selected countries in terms of GDP performance.

brazil gdp evolution

A tough year

Last year was by no means an easy one for the Brazilian economy. The country suffered with the 10-day truckers strike that effectively paralyzed the country late in May and early June. Uncertainties regarding October’s presidential election made investors uneasy, and climate issues hampered agriculture—Brazil’s economic powerhouse.

Right now, the Focus Report poll (a weekly survey conducted with top-rated investment firms) foresees a 2.48 percent GDP growth for 2019, but economists worry that sluggish gains may persist in 2019, as the GDP has consistently slowed to a 0.1-percent fourth-quarter growth in successive years, dragged down by industry and fewer investments on the period.

The approval of structural reforms, especially that of the pension system, is seen as a major driver for growth, ensuring investors in Brazil will enter a fiscally sustainable cycle. If approved, the pension reform may push GDP per capita up by BRL 5,800 by 2023, according to Adolfo Sachsida, the secretary for economic policy at the Ministry of the Economy.    

A more challenging scenario abroad

A very strong U.S. economy is another factor that may weigh on investors’ decision to pull money out of Brazil, mentions Mr. Spyer. American GDP grew 2.9 percent in 2018, the best performance since 2015, which may suggest further interest hikes.

“In Brazil, interest rates hover around 6 percent. In the U.S., it hovers around 3 percent, but the return is in dollars and there are fewer taxes to pay. Their economy is quite strong and the Federal Reserve is giving some ambiguous signs regarding interest hikes. We are starting to feel the impact, money may be starting to go back there,” says Mr. Spyer.

selic benchmark interest rate brazil

A breakdown of Brazil’s GDP

brazil gdp growth

brazil gdp growth

brazil gdp growth

brazil gdp growth

brazil gdp growth

With Data Lagom.

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MoneyFeb 28, 2019

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BY Natália Tomé Scalzaretto

Natália Tomé Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.

BY Marcelo Soares

Marcelo Soares is a Brazilian journalist specializing in data journalism and reader engagement.