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Economy
exits recession in second quarter but activity subdued
In the second quarter, gross domestic product (GDP) increased 1.0% over
the same period last year. The second quarter reading was virtually on
target with last month’s Consensus Forecast expectations, which had
anticipated growth to reach 1.1% and is above a 0.7% contraction
registered in the first quarter.
On a sectoral basis, agriculture and mining led second quarter growth,
registering 4.6% and 15.6% expansions respectively over the same period
last year (Q1: 8.0% and 4.4% respectively year-on-year). Construction
activity continued to remain in negative territory with a 5.7% annual
drop, the fourth consecutive quarterly decline but an improvement from the
8.9% annual decrease seen in the first quarter. The strong growth in
mining helped bolster overall industrial performance, which rose 0.3% in
the second quarter over the same period last year. As a result of
continued low domestic demand, commerce remained in negative territory
with a 0.6% contraction – an improvement from the 4.0% decline in the
first quarter. Together with a 1.0% decline in transportation activity for
the same period, commerce dragged down the overall growth rate in
services, which slowed from an annual rate of 1.7% in the first quarter to
1.4%.
Consumption and investment lagging as credit tight and currency weakens
IBGE has not yet released global supply and demand data. However, other
data indicate that consumption remained subdued in the second quarter. The
government’s current fiscal adjustments are likely to have dragged down
public consumption and retail sales data for the second quarter indicate
that private consumption may have remained in negative territory.
According to IBGE’s national retail sales statistics, the volume of
national retail sales declined 0.9% in the second quarter compared to the
same quarter last year, which was unchanged from the 0.9% decline observed
in the first quarter.
Similarly, investment is likely to have remained in negative territory.
Capital goods output in the second quarter was down 0.4% over the same
quarter last year, a modest improvement from the 1.8% decline seen in the
first quarter. Furthermore, capital goods imports were down 15.6% in the
second quarter over the same quarter last year, which was down from a 5.2%
drop in the first quarter for the same period.
The 6 October elections are likely to loom heavy over
growth in the third quarter and even a mild recovery in the final quarter
is unlikely to bolster annual growth significantly. Despite the positive
second quarter reading, growth remained very subdued for the first half as
a whole, registering a modest 0.14% expansion, which will bear down on
economic growth for the year as a whole. Even though growth is anticipated
to pick up in the second half, annual GDP is expected to expand only
moderately this year. Participants expect economic activity to pick up
next year.
Polls
confirm left-wing voting preference as Lula stands firm and official
candidate in third place
The race for the presidential elections on 6 October is heating up.
Despite the fact that candidates began to air television spots nationwide
on 20 August, election polls remained virtually unchanged over July. July
opinion polls show that the presidential election may yet produce
surprises. Left-wing Worker’s Party presidential candidate, Luiz Inácio da
Silva (‘Lula’) remains firmly in first place with his share of voter
support up to 34% in August from 32% in July. The candidate for the
Popular Socialist Party (PPS, Partido Popular Socialista ex-PCB, Partido
Comunista Brasileiro) Ciro Gomes has maintained his second place lead at
21% over José Serra of incumbent president Cardoso's Brazilian Social
Democratic Party (PSDB, Partido da Social Democracia Brasileiro) who holds
only 15% of the share of voter preferences.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
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