Brazil’s economic growth slowed to a weaker-than-expected 0.4 percent in the third quarter, according to official figures released Thursday, as the central bank’s aggressive interest-rate hikes put the brakes on Latin America’s biggest economy.
The figure was slightly below the 0.6 percent average forecast of analysts polled by business daily Valor, showing the complicated economic picture facing leftist president-elect Luiz Inacio Lula da Silva when he takes over from far-right President Jair Bolsonaro on January 1.
Brazil’s economy grew 1.3 percent in the first quarter of the year and one percent in the second, according to revised figures, but now faces what could be a prolonged slowdown.
Brazil’s central bank waged one of the earliest and most hawkish monetary tightening campaigns in the world as the global inflation crisis started, rapidly raising its key interest rate from an all-time low of two percent in March 2021 to 13.75 percent currently.
That has helped curb annual inflation, from a painfully high 12.13 percent in April to 6.47 percent today.
But it has also slowed economic growth.
“The weaker-than-expected GDP growth figure… highlights that the weakening global economy and higher interest rates are bringing the recent period of strong growth to an end,” said William Jackson, chief emerging markets economist at consulting firm Capital Economics.
“And leading indicators suggest that the fourth quarter will be even weaker still,” he said in a note.
Weak spots
Brazil’s economy has been hit hard by the inflation crisis fueled by the Covid-19 pandemic and the war in Ukraine, as well as factors closer to home, including political paralysis created by Bolsonaro and Lula’s divisive election showdown in October and uncertainty over how the latter will fund his promised social spending.
Lula, who previously led Brazil from 2003 to 2010, and his transition team are scrambling to pass a constitutional amendment that would temporarily exempt an expanded version of Brazil’s main welfare program from the government spending cap.
But the move is making markets nervous over the incoming government’s commitment to fiscal discipline.
Thursday’s figures showed particular weakness in Brazil’s key agricultural sector, which led the slowdown with a contraction of 0.9 percent.
The services sector expanded by 1.1 percent, and industry by 0.8 percent.
Despite Brazil’s unemployment rate falling from a pandemic high of 14.9 percent to 8.3 percent currently, consumer spending also showed a slowdown, from 2.1 percent growth in the second quarter to one percent in the third.
Analysts currently forecast Brazil’s economy will grow 2.8 percent this year and 0.7 percent next, according to the latest central bank poll, released Monday.
That is below the International Monetary Fund’s forecast of 3.5 percent for 2022 for Latin America as a whole.
Weak indicators across the board meanwhile suggest Lula will face a far tougher economic picture than the commodities-fueled boom he presided over in the 2000s.
