Brazilian Growth Forecast Pushed Up To 3.0% After Q223 Print Surprises To The Upside

After Q223’s real GDP print came in at 3.4% y-o-y (0.9% q-o-q), notably above Fitch Solutions and consensus expectations. Fitch has raised its 2023 growth forecast from 2.3% to 3.0%.
Notably, this print did mark a deceleration from 4.0% (1.9% q-o-q) in Q123 – following the high figure of 2022 fuelled by a robust harvest at that time. Despite the deceleration, for the first half, the Brazilian economy expanded 3.7%. From a carryover perspective, if Q223’s seasonally adjusted output level is maintained in the remaining two quarters of the year, full-year GDP would grow by 3.1%.
On a sector level, the agricultural sector contracted by 0.9% q-o-q following the explosive 21.0% growth in Q123, but still increased by 17.0% compared to the prior year. The industrial sector advanced 0.9% q-o-q (boosted by mining), while the services sector added a solid 0.6% (driven particularly by financial services).
Private consumption, for its part, added 2.0 percentage points (pp) to the 3.4% annual growth rate in the quarter, while net exports added 1.5 pp. Government consumption contributed 0.5 pp, while gross fixed capital formation trimmed 0.5 pp.
Fitch continues to expect that the Brazilian economy will lose steam in the coming quarters, with growth slowing to 1.4% in 2024, due to the lagged impact of high interest rates and a weaker external backdrop.
That said, risks to Fitch’s 2023 and 2024 forecasts are to the upside, with some potential for private consumption to continue outperforming Fitch’s expectations. In particular, the Brazilian economy has consistently been surprised by the upside so far this year, with the services sector, in particular, proving to be quite resilient. As a result, there is a risk that even after Fitch’s upward revision the company may still be continuing to underestimate the economy's strength.

(Source: Fitch Solutions)