Today IBGE, Brazil’s statistics bureau, released the national accounts for the 2nd quarter of 2013. At 1.5% quarter on quarter (qoq), seasonally adjusted (sa), GDP growth came at the top of the range of forecasts published by market analysts, which were on average around 1%. As in the 1st quarter, when the economy expanded a more meager 0.6%, agriculture and investment led the expansion. In the output side, both industry and services performed surprisingly well. In the demand side, the main surprise was the significant positive contribution of net exports, reversing the terrible result in the 1st quarter. Consumption growth, on the other hand, remained subdued, at 0.3%.
The results for the 2nd quarter show a much overdue rebalancing of the economy, towards more investment and less consumption, as well as a lower reliance on the expansion of net imports. Likewise, it is positive that agriculture and industry are the leading sectors, while growth in the more labor intensive services sector falls behind. Should one read these results as signaling that the Brazilian economy is entering a healthier growth track? Yes and no.
Agriculture, manufacturing and investment performed poorly in 2012, contracting respectively 2.3%, 2.5% and 4.0%. It is only reasonable that they bounce back this year. Performance in agriculture should remain strong, given Brazil’s competitiveness, the weather permitting. The weakening of the real will help manufacturing in the medium term. In the short term, though, it will affect the sector negatively, given its reliance on imported inputs and the difficulty to pass along cost increases, due to the weakness in consumption.
As we move into 2014 investment growth will likely come down, with rising interest rates and economic and political uncertainty. It is difficult to predict by how much, for this will depend on the strength and effectiveness of economic policy. It is noteworthy, in this sense, that while in the 1st quarter the rise in investment was due almost entirely to a greater absorption of capital goods, with construction performing weakly, in the 2nd quarter construction took the lead. In the 1st quarter, in addition to the need to transport the agricultural crop to the ports, the acquisition of capital goods was boosted by the highly subsidized credit provided by BNDES to the acquisition of capital goods. In the second quarter, in turn, it was the expansion in housing credit by government banks that boosted construction.
I expect the rest of 2013 to show much weaker GDP figures than those of the 2nd quarter. Declining consumer and business confidence, rising interest rates, contracting credit concessions and the piling up of inventories all bode ill for growth. Still, with the surprising figure for the 2nd quarter, GDP growth for the year is now more likely to fall in the 2.0% to 2.5% range, than below 2%, as previously expected.