GDP: Brazil grows with soy, but consumption weakens – 06/01/2023 – Market

The Brazilian economy grew very well and, again, well beyond the forecasts of almost everyone who is professionally dedicated to these informed guesses. GDP increased by 1.9% in the first quarter of 2023 compared to the fourth quarter of 2022. If growth in the next quarters is zero, none, GDP for this 2023 will have grown by 2.4% —the next estimates should be above 2% . At the end of 2022, the median of the hundred “market” projections compiled by the Central Bank was a 0.8% increase in GDP. It’s an enormity of difference.

As is already known, this exceptional result for the quarter was due to agriculture, particularly soy production (almost considered GDP from the point of view of production), with an incredible 21.6% increase. Industry as a whole was stagnant, but extractive industries (ore, oil, etc. “mines and black gold”), did well (increase of 2.3%).

The manufacturing industry (“factories”) shrank for the third straight quarter; civil construction, by the second. The services sector resisted (increase of 0.6%), also driven by demand from primary sectors and exporters (grains, ores, etc.).

Looking at the same GDP in another way, from the point of view of consumption, we see, of course, the same very good result, as a whole. But the numbers give more food for thought about what has been going on in the economy.

Investment in new production facilities, new homes, machinery and equipment fell for the second quarter in a row; the investment rate (how much the economy uses GDP for productive expansion) has fallen since mid-2022. Private consumption, namely household consumption, increased by only 0.2%.

Where is GDP growth from a consumption perspective? In exports much greater than imports: the outside world was responsible for a good part of the growth in the consumption of our production; in “inventory variation”, in this case, probably, agricultural production to be exported.

Domestic demand (household and government consumption and investment) made a negative contribution to GDP growth (-0.48 percentage points). Exports (minus imports), with a contribution of 1.26 points, and changes in inventories (1.17 points) led the quarterly GDP forward.

Simply put, the economy grew in those sectors less subject to interest rates, roughly speaking. High interest rates and tighter financial conditions in general, in addition to indebted households and companies, constrain private consumption and productive investment. There are signs of a slowdown in the economy, which should weaken a little more throughout the year due to the slowdown in job and salary growth.

Still, given the pessimism at the end of last year, the result was very good, repeat. Remember that the economy grew 2.9% in 2022. In the four quarters up to the first of 2023, 3.3% — as a whole, it accelerated.

This result should also help the government’s collection, which will need a lot of revenue in order to adjust its accounts, its deficits, and contain the rise in public debt. Finally, giving a little political color to the GDP numbers, agribusiness, which in general does not have sympathy for the Lula government, to say the least, must say that it is holding the ends of the Brazilian economy. The industry will ask for more help.