Brazil’s latest quarterly GDP report (with the first estimate of full 2022 figures), released a week ago, confirmed a rather strong expansion last year. Annual GDP grew 2.9 percent (the second-fastest pace in a decade), well above the generally gloomy view that prevailed at the start of 2022.
At that time, the median forecaster in the Central Bank’s weekly survey was penciling in a meager 0.3 percent growth. Economic activity was mostly driven by the services sector, which was recovering from the rapid reopening that followed the previous year’s massive vaccine drive.
Unfortunately, the sequential quarterly growth that led to that performance was increasingly lackluster, from a solid 1.3 percent in Q1 to 0.3 percent in Q3, and a contraction of 0.2 percent in Q4. The cycle of jumbo rate hikes that ended in August progressively started to bite, while the fast recovery of mobility-linked activities naturally led to weaker growth at the margin once “normal” levels were reached.
With such a slowdown in momentum, it is natural to ask whether the country will soon face another recession — which would be its third in less than ten years. According to political reports, this is one of the top concerns of the newly elected left-wing government.
As the narrative goes, a weak economy could erode the president’s popularity and provide the spark to ignite a nasty...
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