First quarter GDP grew with agribusiness and services

The good performance of agribusiness, the resilience of the services sector and the good performance of the segments most exposed to income transfers by the government contributed to the increase in the Gross Domestic Product (GDP) in the first quarter. Official data will be released this Thursday (1st) by the Brazilian Institute of Geography and Statistics (IBGE), and estimates point to an expansion of more than 1% compared to the last quarter of 2022.

Banco Itaú and brokerage XP Investimentos forecast an increase of 1.4%. The GDP Monitor of the Getulio Vargas Foundation (FGV), meanwhile, estimated growth of 1.6% in economic activity in the first quarter of 2023, compared to the last three months of 2022.

“The expressive performance of agriculture and livestock is the main factor responsible for the growth. In addition, the positive performance of services also stands out, with growth in practically all of its activities, which signals a certain resilience of this sector at the beginning of 2023”, says the coordinator of the FGV research, Juliana Trece.

She points out, however, that it is important to highlight that the growth of agriculture and livestock was quite concentrated and should not maintain the same pace throughout the year. “The strong contribution of soybean production and its high participation in the added value of agriculture were crucial for GDP growth in the first quarter”, she adds.

BC numbers also point to a good performance of the Brazilian economy at the beginning of the year. In the first quarter, the Central Bank Economic Activity Index (IBC-Br) varied 2.4% over the last quarter of 2022.

The federal government has a GDP growth of 1.2% in the first quarter, according to the projection of the Economic Policy Secretariat (SPE) of the Ministry of Finance. The number is lower than projected by some private institutions. On the other hand, the SPE recently raised its GDP estimate for the full year from 1.6% to 1.9%, in this case well above financial market expectations, which point to an increase of 1.26%, according to the BC bulletin Focus.

“The increase in growth expected for this year reflects the release of economic indicators with better results than those projected for the first quarter and for the beginning of the second”, informs the secretariat.

Campo is the main driver of GDP expansion in the 1st quarter

The main driver of economic expansion in the first quarter must be the countryside. The summer grain harvest was estimated by the National Supply Company (Conab) at 302.6 million tons, 16.4% more than in the previous cycle.

For this year, the Dutch bank Rabobank points out that commodities linked to exports should have significant gains in production. This is the case of soy, which is estimated to grow by 18.6%; corn, 9.6%; cotton, 9%; sugar cane, 7.1% and coffee, 4%. The financial institution projects an increase of 1.2% in annual GDP.

Commodity exports linked to the countryside are also doing well. If foreign sales of soybeans remained stable in the first quarter, those of corn grew by 3.2 times in the comparison between the first quarters of 2022 and 2023, reaching US$ 2.8 billion.

“Slaughter data has also been surprising, reflecting the increase in animal protein exports”, point out Bradesco analysts. Business with pork expanded 30.2%, totaling US$ 602 million in the first three months of the year.

Boosts to GDP in other sectors

Rabobank also points out that more income-sensitive segments have been benefiting from fiscal stimuli. This is the case of supermarkets, which according to the IBGE had a growth of 3.2% in sales volume in the first quarter, compared to the same period last year.

The services sector also remains strong, especially transport and storage, which benefited from the record harvest. The volume of services provided grew by 5.8% in the first three months of the year compared to the same period in 2022.

Another branch that has been showing vigorous performance, according to Bradesco’s assessment, is the extractive industry. The segment recorded an expansion of 3.4% between the first quarters of 2022 and 2023.

The financial institution considers that the favorable prospects for the production of oil and iron ore should prevent a more intense slowdown in the industry.

Economic activity weakened, but less than expected

Strategists Maurício Une and Renan Alves, from Rabobank, point out that high-frequency indicators show that the pace of economic activity has been losing strength. However, the deceleration is smoother than expected until recently.

For the coming quarters, a loss of traction is expected. According to Rodolfo Margato, economist at XP Investimentos, the reasons are the credit crunch, the dissipation of the post-Covid momentum and the weakening of the labor market, which signaled an unemployment rate of 8.5% in the moving quarter ended in April . At the turn of the year, it was at 7.9%.

But even with this scenario, the midpoint (median) of financial market projections for economic growth in 2023 has been increasing in the last four weeks, according to the Central Bank’s Focus bulletin. They went from 1% to 1.26%.

However, this greater expansion this year may translate into a loss of pace in growth in 2024. Signals for growth in economic activity next year fell from 1.41% four weeks ago to 1.3% now.