Source: AFP
Brazil’s economy grew 0.8 percent in the first quarter, the government said on Tuesday, a recovery boosted by consumer spending that analysts said could put the central bank on guard against inflation.
The result was slightly better than analysts’ forecasts for 0.7 percent in Latin America’s biggest economy, whose President Luis Inacio Lula da Silva has pledged to deliver “solid” growth.
Lula said the result was “more proof that we’re on the right track,” in a post on X.
Brazil’s GDP grew by 2.5% compared to the first quarter of 2023, according to the Brazilian Institute of Statistics (IBGE).
Independent analyst Andre Perfeito noted that a 1.5 percent increase in household consumption was a key driver of first-quarter growth, with more Brazilians working after unemployment fell.
William Jackson, chief emerging markets economist at Capital Economics, said the pace of growth and consumer spending “will raise (even more) inflation concerns at the central bank.”
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The central bank has slowly made small downward adjustments to the interest rate, now at 10.5 percent, under pressure from Lula who has said high borrowing costs are hurting economic growth.
Brazil’s benchmark interest rate is among the highest in the world in real terms after aggressive hikes in the wake of the Covid-19 pandemic and Russia’s invasion of Ukraine sent global prices on an upward trajectory in early 2021.
A “temporary” boost
Growth in the first quarter also came from a recovery in agriculture, which rose 11.3 percent, according to IBGE.
However, the industry is not performing as well as in previous years and has declined by 3% since the first quarter of 2023.
Agricultural commodities with major harvests early in the year — such as soybeans, corn, tobacco and cassava — saw a drop in estimated annual output compared to the same period last year.
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IBGE analyst Rebeca Palis pointed out that economic growth in the first quarter had been “entirely driven by domestic demand”.
Brazil’s economy shrank 0.1% in the fourth quarter of 2023, after growing 0.1% in the previous quarter.
In May, the government raised its growth forecast for 2024 to 2.5%.
But he has warned that the estimates do not take into account the devastation caused by historic flooding in the southern state of Rio Grande do Sul, one of the country’s biggest economies.
Jackson said the pick-up in growth was “temporary … and does not signal the start of a strong recovery.”
He said indicators point to a weaker second quarter and Capital Economic estimates growth in 2024 to be 1.5-1.8%.
“Flooding in the Rio Grande do Sul may affect growth. And we doubt that the strength of agricultural production in the first quarter will be sustained,” Jackson said.
Source: AFP