The Brazilian Gross Domestic Product (GDP) in the second quarter surprised positively, advancing 1.2% and coming above the average projected by the market. The service sector confirmed its importance for the economic growth of the period. The segment advanced 1.3% in the quarter and should continue to be the engine of the economy until the end of the year, according to analysts. Some houses are already starting to review their projections for the Brazilian GDP in the year after the result released today.
This is the case of Goldman Sachs, which updated its growth forecast from 2.2% to 2.9%. The bank points out that in addition to the better-than-expected second quarter, the growth rates for the fourth quarter of 2021 and the first quarter of 2022 were also revised upwards.
BofA was even more optimistic, raising the forecast from 2.5% to 3.25%. The Bank believes that stimulus measures and reductions in fuel prices should have a major positive influence on the second half results. “The impact of a global slowdown is a downside risk for the period, as well as the effects of tight monetary policy”, note the BofA analysts.
“Analysts greatly underestimated the impact of the service sector on activity”, admits economist Gustavo Cruz, strategist at RB Investimentos. After the release of the second quarter GDP, RB Investimentos revised its economic growth forecast for 2022, from the base scenario (+2%) to the optimistic scenario (+2.5%).
“We have seen growth especially related to transport, largely due to changes in the population’s consumption habits. E-commerce makes this part more dynamic, but it also has the external sector. All part of the transport, storage and international freight of commodities ends up being accounted for in services”, explains Matheus Pizzani, economist at CM Capital. The house is also revising its 2022 GDP estimates upwards, following the result released today.
The improvement in activity has been going on since the beginning of the year and is mainly explained by the reopening of the economy after the relaxation of the pandemic restrictions and the recovery of the labor market. Another favorable aspect is the tax benefits, such as the release of extraordinary withdrawals from the FGTS and the anticipation of the 13th salary for retirees and pensioners. Income transfer programs such as Auxílio Brasil and the voucher for truck drivers promise to continue fueling the economy in the second half of the year.
“The number [do segundo trimestre] was quite strong, robust, showing that a good part of the economic activity is being generated in Brazil. This is what we call internal absorption, we take out the external components”, says Victor Candido, chief economist at RPS Capital. “The external sector was not highlighted, imports grew [7,6%] and exports decreased [-2,5%].”
Domestic absorption increased 2.4% in the quarterly comparison, after falling 0.3% between January and March this year.
On the demand side, one of the highlights was household consumption, which increased 2.6%. “This happens due to the resumption of employment, which despite having a real average income per worker still low, caused the salary mass to rise in the wake of more people working”, explains André Perfeito, chief economist at Necton. Despite the good result, the house has not yet revised its projections for the 2022 GDP. “We will look in detail at other components such as the external sector, which retreated with the expressive rise in imports and fall in exports”.
Expectations for GDP in the coming quarters
“It remains to be seen how the second half of the year will be, in which a deceleration is expected due to the effects of monetary policy”, says Luca Mercadante, economist at Rio Bravo. With today’s result, the house must revise its 2022 GDP projections to a level close to 2.5%, compared to 2% previously expected.
Laiz Carvalho, economist for Brazil at BNP Paribas, says that in addition to exceeding expectations, the second quarter GDP brings a positive horizon for the course of the year. “Household consumption and investments rising, domestic absorption, is a very positive composition that brings good perspectives”, he explains. The bank forecasts growth of a similar magnitude for the Brazilian economy in the third quarter (by 1%) and is also revising forecasts for the closed GDP of 2022.
“For the second half of the year, the outlook is for activity to slow down due to the effects of rising interest rates and high inflation. However, the dynamics of the labor market, tax reductions on important items (fuels and energy) and new tax incentives, such as the PEC dos Auxílios, will give new impetus”, says Gustavo Sung, chief economist at Suno Research.
“We continue to expect a slowdown in domestic activity in the current semester. However, the steady recovery of labor market conditions combined with short-term fiscal stimulus should allow for a smooth economic cooling”, wrote Rodolfo Margato, economist at XP.
The house’s expectation for GDP growth in 2022, currently at 2.2%, has an upward bias. “Finally, we also attribute a positive bias to the forecast of a 0.5% increase in GDP for 2023, despite the monetary policy in largely contractionary territory and the weakening of the global economy”, says Margato.
Itaú maintained its projection that the economy will remain relatively stable until the end of the year. The bank’s forecast is for a 0.1% rise in GDP in the third quarter and a contraction of 0.1% in the fourth. “Fiscal stimulus is likely to be offset by the tightening effects of monetary policy and slowing global activity,” the analysts wrote. However, the bank also placed an upward bias for its 2022 GDP projection, currently at 2.2%.
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