Economy surprises, but does not rule out loss of pace in 2023 – 05/17/2023 – Market

Results of sectors of the Brazilian economy surveyed by the IBGE (Brazilian Institute of Geography and Statistics) surprised analysts, reinforcing the projections of a more positive scenario for the GDP (Gross Domestic Product) in the first quarter.

This context, however, does not rule out the expectation of a loss of pace in economic activity throughout 2023. The assessment is still that high interest rates, credit restrictions and the slowdown of the global economy tend to prevent a stronger performance in the accumulated year.

This Wednesday (17), the IBGE reported that retail sales rose 0.8% in March compared to February. The data was well above the forecasts of analysts consulted by the Reuters agency, who expected a 0.8% retraction.

As a result, retail closed the first quarter of 2023 with a 2% increase compared to the immediately previous three months. The sector is 4.3% above the pre-pandemic level of February 2020.

In a report signed by economist Gabriel Couto, Santander Brasil highlighted that retail sales came in above expectations in March.

As a result, the projection updated more frequently by the bank now indicates growth of 1.1% for GDP in the first quarter, compared to 1% in the previous estimate.

For the accumulated result for this year, Santander foresees an increase of 1%, with a slowdown amid the slowdown of the global economy and high interest rates in Brazil.

Itaú Unibanco, also in a report, stated that the positive figures for retail sales in the first quarter “showed a certain resilience of economic activity in the period”.

“The stronger-than-expected job market and the fiscal stimulus supported household spending”, says the analysis signed by economists Natalia Cotarelli and Matheus Fuck.

“Despite this, we expect some slowdown in retail sales in the coming months amid the lagged effects of monetary policy”, he adds.

In the same report, Itaú indicates that the estimate for the quarterly GDP increased from 1.3% to 1.4%, taking into account the more frequently updated monitoring.

Before presenting the retail trade figures, the IBGE reported on Tuesday (16) that the volume of services in March grew by 0.9% compared to February. The expectation of analysts consulted by Reuters was a smaller variation, of 0.5%.

The advance came after a fall of 2.9% in January and growth of 0.7% in February. The services sector closed the first quarter with a decrease of 0.3% in relation to the previous three months.

The segment, however, comes from a higher base of comparison due to the resumption of business after the pandemic restrictions. A sign of this is that the branch is 12.4% above the February 2020 level, according to the IBGE.

“The services sector has been the great protagonist, it made us revise the GDP upwards”, says economist Igor Cadilhac, from Banco Original, highlighting the advances of the segment after the fall in January.

After the release of services data for February, the Original projections for GDP were revised to an increase of 1.1% in the first quarter and an increase of 0.8% in the accumulated of 2023. The previous estimates were 0.5 % and 0.7%, respectively.

In Cadilhac’s view, the good conditions of the grain harvest and the still heated job market, even with the recent slowdown, benefited economic activity at the start of the year.

This, he ponders, does not eliminate the difficulties on the radar for the remainder of 2023. “The scenario is very challenging, with high interest rates, family indebtedness”, points out the economist.

Last week, the IBGE reported that industrial production grew by 1.1% in March. Analysts expected an increase of 0.8%, according to a Reuters poll.

The growth registered by factories came after two consecutive declines (-0.3% in January and -0.2% in February). The level of industrial production, however, is still 1.3% below pre-pandemic levels.

The GDP result for the first quarter of 2023 will be released on June 1st by the IBGE. In the fourth quarter of 2022, the indicator decreased by 0.2% compared to the immediately previous three months. Even so, it closed 2022 with a 2.9% increase in the year.

The slowdown in economic activity in 2023 was already predicted by analysts due to factors such as high interest rates.

The BC (Central Bank) has been maintaining the basic interest rate (Selic) at 13.75% per year. By trying to cool the demand for goods and services, the double-digit Selic seeks to curb prices and anchor expectations for inflation.

The expected side effect is the loss of pace of economic activity, as credit becomes more expensive for companies and consumers.

This scenario worries President Luiz Inácio Lula da Silva (PT) in the first year of his government. Throughout 2023, Lula has already made a series of criticisms of BC President Roberto Campos Neto due to high interest rates.

Regarding the agricultural sector, the IBGE projected a record harvest of 302.1 million tons in the country in 2023, according to an estimate made in April and released in May.

The predicted number is 14.8% higher than that obtained in 2022 (263.2 million tons). According to the institute, the better rainfall conditions this year benefited production in the field – the exception was Rio Grande do Sul, which suffered a new drought last summer.