Brazil’s GDP surges back to pre-pandemic levels

Brazil’s gross domestic product expanded faster than expected in the first quarter, bringing Latin America’s largest economy back to where it was before the pandemic struck at the end of 2019.

Official data released on Tuesday showed that the economy grew 1.2 per cent from the previous quarter, when it expanded 3.2 per cent. Compared with the same quarter last year, the economy grew 1 per cent.

“The growth was quite surprising if you think that a little less than a month ago most economists believed that there was going to be a fall. This will spur hopes of a faster recovery for Brazil,” said Gustavo Cruz, a strategist at RB Investimentos.

Following the stronger than expected results — which analysts attributed to the country’s booming agricultural sector, an uptick in fixed investment and looser sanitary restrictions — several economists said they were revising their forecasts for annual growth upward to 4 per cent, from about 3 per cent currently.

“Looking ahead, the economy is expected to pick up in the second half of the year as the vaccination campaign gathers pace and restrictions are lifted more effectively. All in all, the picture of the Brazilian economy looks better and GDP is expected to grow by at least 4 per cent this year,” said Luciano Rostagno, chief strategist at Banco Mizuho São Paulo.

José Mauro Delella, a consultant at Alta Vista Investimentos, added that “although there was an emphasis on agriculture, all sectors showed positive growth, which is remarkable given Covid-19 restrictions”.

He warned, however, that much depended on the trajectory of the pandemic in Brazil. Scientists have already raised the alarm about a potential third wave of the disease.

Economists at IBGE, the national statistics bureau, said that although GDP growth in the first quarter had returned to pre-pandemic levels, it was “still 3.1 per cent below the highest point of economic activity reached in the first quarter of 2014”.

The growing optimism has also been tempered by the dual threat of rising inflation and unemployment, which are fuelling social discontent.

The stronger GDP numbers, from the rise of commodities and higher inflation, do not necessarily reflect a better life for families because there was no increase in household income.

Figures released last week showed that 15m Brazilians — or 14.7 per cent of the population — were without work. In regions such as the north-east, 18.6 per cent of citizens are unemployed.

“The stronger GDP numbers, from the rise of commodities and higher inflation, do not necessarily reflect a better life for families because there was no increase in household income. And the price of essential goods, such as food and energy, is increasing, which takes a heavy toll,” said Jayme Carvalho, of the financial planning group Planejar.

Brazil’s consumer price index has increased 2.7 per cent this year and 6.7 per cent in the past 12 months. Roberto Campos Neto, the president of Brazil’s central bank, has warned that inflation will increase further.

“Inflation remains in an upward spiral and international commodity prices are the main source of pressure. The momentum started with oil and iron ore and with the economic reopening in some countries and the subsequent resumption of demand. More recently, climate problems have also put pressure on international agricultural commodity prices,” said João Leal, an economist at Rio Bravo Investimentos.

Cruz added: “Inflation is the challenge for the year.”

Additional reporting by Carolina Pulice