Surprise in Brazil: the economy grew more than expected and is heading for its best year in a long time

BRASILIA.- Brazil’s economy recovered more than expected in the second quarter, driven by consumer spending and a rebound in services, providing a tailwind for President Jair Bolsonaro in his search for re-election in the October 2 elections.

The Gross Domestic Product (GDP) of the largest economy in Latin America expanded 1.2% in the three months to Junereported the government statistics agency IBGE, better than the 0.9% growth forecast in a Reuters poll of economists.

The evolution of the Brazilian GDP by quarters, according to the IBGE

It was the fourth consecutive quarter of growthraising economic activity 3% above its pre-pandemic leveland just shy of its all-time high in the first quarter of 2014.

Bolsonaro, who follows behind the former leftist president Luiz Inacio Lula da Silva in opinion polls, he focused his efforts on economic initiatives to increase his popularity, boosting handing out cash to low-income families and adopting fiscal measures to curb inflation.

Brazilian presidential candidate Simone Tebet, center, participates in a debate with incumbent President Jair Bolsonaro, right, and Luiz Inacio Lula da Silva, in Sao Paulo, Brazil, Sunday, Aug. 28, 2022. (AP Photo/ Andrew Penner)
Brazilian presidential candidate Simone Tebet, center, participates in a debate with incumbent President Jair Bolsonaro, right, and Luiz Inacio Lula da Silva, in Sao Paulo, Brazil, Sunday, Aug. 28, 2022. (AP Photo/ Andrew Penner)

The fuel tax exemptions were due to expire this year, but after a campaign commitment, the president already extended them until 2023 in a budget bill sent to Congress.

Second quarter GDP was underpinned mainly by a 1.3% increase in services. The sector, which has reacted strongly after the blow suffered by the pandemic, represents the 70% of the economy.

At the same time, industry expanded 2.2% and agriculture grew 0.5%. “The result shows a consolidation of the resumption of economic activity, even with the impacts of the conflict in Eastern Europe and the persistent effects of the pandemic,” the Ministry of Economy said in a statement.

Echoing recent speeches by Minister Paulo Guedes, who predicted the economy would grow more than 2.5% this year, the ministry noted that activity has been supported by the good performance of services, the recovery of employment and a high level of private investment.

Brazil’s unemployment rate fell to 9.1% in the quarter to July, level lowest in nearly seven years.

William Jackson, chief emerging markets economist at Capital Economics, revised his forecast for economic expansion this year to 2.5% from 2% after the second-quarter growth report, but stressed that “the economy is likely to weaken during the second half of the year.”

Activity grew 3.2% from the second quarter of 2021, exceeding a forecast of a 2.8% advance. IBGE also revised the performance of the Gross Domestic Product (GDP) for the first quarter to an expansion of 1.1 % from a previously reported 1.0% increase.

The disclosed numbers indicate “The consolidation of the return of economic activity despite the impact of the conflict in Eastern Europe and the effects of the pandemic (of coronavirus) ”, said a statement from the Ministry of Economy, the first government demonstration after the indicator was known.

“In sum, it is found continuity of recovery and sustainability of economic activity”Brazilian, pointed out the note from the ministry whose head is Paulo Guedes.

With this performance, Brazil ranked seventh in a table on world economic growth prepared by the risk rating agency Austing Rating. The first place in that table on growth in the second quarter was occupied by Netherlands, followed by Turkey Y Saudi Arabia.

Agencies Reuters, ANSA and AFP

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