2023-09-01 17:13:50
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Brazil’s economy grew more than expected in the second quarter on the back of increased activity in industry and services, in a boost for president Luiz Inácio Lula da Silva’s pledge to lift living standards in Latin America’s largest economy.
Gross domestic product expanded 0.9 per cent in the three months to the end of June — a deceleration from the preceding period — but beating a 0.3 per cent quarter-on-quarter rise predicted in a Archyde.com poll of analysts.
While output fell in the South American nation’s crucial agricultural sector following a strong harvest in the previous quarter, domestic demand accelerated on the back of higher household and government consumption.
Compared with the same quarter in 2022, GDP increased 3.4 per cent, according to official data from the Brazilian Institute for Geography and Statistics.
The robust figures were welcomed by the administration of leftwing leader Lula, who has promised to increase public spending and the minimum wage.
The three-time president has railed against the central bank’s double-digit interest rates as a drag on growth and following Friday’s GDP release he again took aim at its governor, Roberto Campos Neto. Lula said “he needs to lower rates” from their double-digit levels to encourage economic activity.
The institution kicked off monetary easing with a half-point cut last month that took its lending benchmark to 13.25 per cent, but Lula wants it to speed up the cycle.
“How is a businessperson going to invest? How will they build a factory?” the 77-year-old Lula said at an event. “How will a businessperson make any investment if he gets very high interest rates?”
Forecasts for Brazil’s growth in 2023 have been consistently revised upwards since the start of the year, when Lula assumed office after a narrow election win over hard-right populist Jair Bolsonaro.
Even so, some analysts are predicting a slowdown following a solid first half of the year, which included a 1.8 per cent quarter-on-quarter jump in GDP in the first three months.
William Jackson, chief emerging markets economist at Capital Economics, said the second-quarter numbers suggested the Brazilian economy was in stronger health than many had thought.
“We think growth will weaken over the second half of the year as Brazil’s terms of trade worsen, the boost from this year’s harvest unwinds, and fiscal support eases. But it now looks like the economy will easily expand by over 3 per cent in 2023.”
Independent economists last week predicted on average an expansion of 2.3 per cent in 2023, according to a survey by the central bank, up from a forecast of 0.8 per cent at the start of the year.
The new outlook is likely to weigh on how monetary policymakers approach future rates decisions, Jackson added.
“The current strength of the economy probably rules out the central bank stepping up the pace of its easing cycle from 50 basis point moves.”
Additional reporting by Beatriz Langella
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