Brazil economy Q3 central bank data negative territory

Brazil's economy declined in Q3, reversing a positive trend due to the farming sector. Forecasters expect further contraction.

The Brazilian economy closed out the third quarter with a surprising decline, as indicated by data from the central bank on Friday. The IBC-Br index, a key indicator of gross domestic product (GDP), showed a seasonally adjusted 0.64% decrease in the third quarter, following a 0.06% drop in September compared to August. This was contrary to the 0.2% monthly expansion expected by economists.

On a non-seasonally adjusted basis, the IBC-Br grew by 0.32% in September 2022 and expanded by 2.50% over the 12 months. Finance Minister Fernando Haddad had been highlighting a "very poor" third quarter, attributing it to high borrowing costs and declining commodity prices compared to the same period last year, which impacted corporate performance and tax revenue.

The Finance Ministry's initial estimate of a 3.2% GDP growth for this year is expected to be revised next week, while private economists surveyed by the central bank project a 2.89% increase in GDP for this year. The September IBC-Br index aligned with a negative performance of the service sector, which accounts for approximately 70% of the country's activity, according to Nova Futura economist Nicolas Borsoi.

Borsoi noted, "There is now a downward bias to our forecast of a 0.2% GDP drop in the third quarter. My perception is that the fourth quarter will be even worse. For now, we're sticking to our 3% growth forecast for the year, but 2.8% seems likely as well."

This decline is a significant shift from the strength previously seen in Brazil's agribusiness and extractive industries, as well as the measures implemented by President Luiz Inacio Lula da Silva's government to enhance household disposable income and stimulate domestic demand. The economic landscape is evolving, and the impact of these changes is being closely monitored by economists and policymakers.