Brazil’s Economic Growth Forecast for Q4 2023 Shows Slowing Momentum

In the last quarter of 2023, Brazil’s economy is projected to grow by 0.5%, down from 0.9% in Q3, driven by declines in private consumption and investment. Despite fiscal concerns impacting markets, forecasts for 2024 have improved, predicting a growth rate of 3.4%. The government has adjusted its 2025 growth forecast downward amid continuous monetary tightening.

Brazil’s economy is expected to experience a slowdown in growth during the final quarter of the previous year, attributed to reduced private consumption and investment, as revealed by a Reuters poll. The median estimate from 21 economists indicates an expansion of 0.5% in the October to December period compared to the prior quarter, while the annual growth rate is projected at 4.1%. This represents a deceleration from the 0.9% growth observed in the third quarter.

Analysts from J.P. Morgan attributed this slowdown to diminishing private consumption and the first decline in investment in over a year. However, they noted that strong government consumption, a slight positive contribution from net exports, and inventory levels aided in maintaining a positive growth trajectory towards the end of last year.

The reliance on federal spending in Brazil’s economy has raised fiscal concerns, resulting in market sell-offs. Additionally, while foreign direct investment increased, it did not keep pace with the current account deficit, which hindered economic expansion. On the supply side, economist Bruno Imazumi from LCA 4intelligence predicts growth rises in various sectors: 0.4% in services, 0.1% in industry, and 1.8% in agriculture, particularly in the financial intermediation and insurance subsectors.

The upcoming gross domestic product data is expected to confirm that economic growth for 2024 will surpass initial market predictions. Analysts have adjusted their forecasts upward throughout the previous year in response to a robust job market and increased social spending that mitigated the impacts of high interest rates. The January consensus estimate from a Reuters poll suggests an annual growth rate of 3.4% for 2024, significantly higher than the 1.6% predicted at the commencement of the previous year.

For 2025, however, Brazil’s government has revised its growth forecast downward to 2.3% as the central bank continues its monetary tightening policy, accompanied by raised inflation projections. A senior government official recently confirmed that, despite the challenges, the administration will adhere to the fiscal framework without enacting extraordinary measures to stimulate growth.

In summary, Brazil’s economic growth is expected to slow down in the last quarter of the previous year, with a forecasted increase of 0.5%, a decrease from 0.9% in the prior quarter. Factors such as reduced private consumption and investment, coupled with fiscal concerns, are influencing this trend. Despite the challenges, forecasts for 2024 economic growth have improved significantly, reflecting resilience in the job market and social spending. However, the government’s revised growth outlook for 2025 indicates caution amid ongoing monetary tightening.

Original Source: www.marketscreener.com