Brazilian Economy Shows Resilience Despite Severe Covid-19 Crisis

• Real GDP in Brazil grew 1.0% y-o-y in Q1 2021, outperforming prior expectation of stagnant 0.0% growth. The figure suggests that despite continuing to have one of the world's worst COVID-19 outbreaks, the government's avoidance of imposing nationwide restrictions on mobility has allowed its economy to continue to trend towards pre-pandemic levels. 
• Growth was led by gross fixed capital formation, which grew 17.0%, offsetting declines of 1.7% and 4.9% in private and public consumption, respectively. 
• Consequently, Fitch Solutions has revised its annual growth forecast to 3.5%, from 3.2% previously. Bloomberg consensus expectations also moved up, to 3.5% from 3.0% in late April, reflecting relatively resilient high-frequency data from Q1 2021 and the approval of additional household income support measures in the 2021 budget enacted in April. 
• While Fitch expects strong y-o-y growth in Q2 due to favourable base effects, the agency nonetheless retained its expectation that the pace of Brazil’s rebound will slow in the second quarter of this year and be visible in a weak q-o-q growth print. 
• As of the end of May, new confirmed cases and deaths due to COVID-19 remain near the highest levels of the crisis yet, which has triggered a retightening of restrictions in some localities and disruptions to some economic activity. 
• The aforementioned factors have resulted in an unemployment rate of 14.7% in March, the highest level since at least 2012. The disruptions to emergency aid payments, rising inflation (6.8% y-o-y in April), and interest rate hikes, have increased the risk of rising debt burdens.

(Source: Fitch Solutions)