Brazil GDP (Q4 2020) - Capital Economics
Latin America Economics

Brazil GDP (Q4 2020)

Latin America Data Response
Written by William Jackson
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The larger-than-expected 3.2% q/q rise in Brazilian GDP in Q4 confirms that the economy had one of the better performances in Latin America last year. But there is strong evidence to suggest that the recovery has slowed so far this year, and the worsening COVID-19 outbreak is casting a dark cloud over the outlook for the next few months at least.

Strong H2 2020 recovery, but slowing in 2021

  • The larger-than-expected 3.2% q/q rise in Brazilian GDP in Q4 confirms that the economy had one of the better performances in Latin America last year. But there is strong evidence to suggest that the recovery has slowed so far this year, and the worsening COVID-19 outbreak is casting a dark cloud over the outlook for the next few months at least.
  • The outturn was a bit stronger than both our own expectation and the consensus forecast collected by Refinitiv (+3.0% q/q and +2.8% q/q respectively). In year-on-year terms, output was down 1.1%, compared with -3.9% y/y in the previous quarter. (See Chart 1.)
  • Overall, the data confirm that Brazil’s economy suffered less from the pandemic than the other large economies in the region. For comparison, output was down 3.5-4.5% y/y in Colombia and Mexico in Q4. Brazil’s economy was supported by a relatively light-touch lockdown and large fiscal support.
  • The breakdown showed a pretty broad-based recovery. Household and government consumption continued to increase (see Table 1), although both remained some way below their levels a year ago. On the face of it, the recovery in fixed investment (+20.0% q/q) is extremely encouraging.
  • But this investment appears to be, at least in part, related to oil rig imports and related infrastructure. That could be an accounting quirk (the Repetro customs regime – see here) and is, in any case, likely to be temporary. Moreover, it also led to a sharp increase in imports, which has a negative and offsetting impact on GDP growth. More worryingly, exports fell in Q4.
  • But while the economy performed relatively well over Q4 as a whole, the economy has shown clear signs of weakening recently. Retail sales plunged in December and surveys point to further weakness in the first two months of this year. What’s more, the worsening virus outbreak and likelihood of tighter containment measures are likely to depress activity in the coming months. (See here.) The risks around our below-consensus GDP growth forecast for this year, of 3.0%, are probably skewed to the downside.

Chart 1: Brazil GDP

Sources: Refinitiv, IBGE

Table 1: Brazil GDP

GDP

Hsd. Cons.

Govt. Cons.

Fixed Inv.

Exports

Imports

% q/q

% y/y

% q/q

% y/y

% q/q

% y/y

% q/q

% y/y

% q/q

% y/y

% q/q

% y/y

Q1 ‘20

-2.1

-0.3

-1.9

-0.7

-0.7

-0.8

2.4

6.0

-2.2

-2.4

-0.3

5.2

Q2 ‘20

-9.2

-10.9

-11.3

-12.2

-7.7

-8.5

-16.3

-13.9

1.1

0.7

-11.8

-14.6

Q3 ‘20

7.7

-3.9

7.7

-6.0

3.5

-5.3

10.7

-7.8

-2.0

-1.1

-9.6

-25.0

Q4 ‘20

3.2

-1.1

3.4

-3.0

1.1

-4.1

20.0

13.5

-1.4

-4.3

22.0

-3.1

Source: IBGE. Note: q/q numbers are SA, y/y numbers are NSA


William Jackson, Chief Emerging Markets Economist, william.jackson@capitaleconomics.com