The result of the GDP may have shown some relief that the economy is still growing. However, this result is still not a guarantee that the situation is better and that the growth in the year will be higher than current expectations, around 2.5% YoY, the so called PIBinho, diminutive for GDP in Portuguese.
Manufacturing GDP should fall significantly this Q3, due to deceleration in the transformation industry and important slowdown in the building industry.
Inflation is also close to the top of the range targeted by the central bank: 2.5% – 6.5%. This is having them raise the interest rate index SELIC, which is already at 9% a year. The recent weakening of Brazilian real will cause inflationary pressures and will cause the central bank to keep raising rates and cooling down the economy growth.
Any military intervention in Syria would cause an even worse scenario for GDP growth, with investments flowing from emerging markets into US treasuries and other safe options in developed world. This will reduce the money available for investment in Brazil as well as get the Brazilian Real even weaker.
The good news is that sectors mainly focused on exports and sectors that compete heavily with imports are getting a relief from the current weaker Real. That is the case of steal, lumber, agriculture and manufacturing in general. This can in the mid-term help offset this down spiral caused by weak GDP/ High Inflation.
So, while the 1.5% QoQ growth was better than expected and a little bit of a relief, especially to the politicians, this number is looking at the rear-view mirror and should not continue to happen in the short term and even in the long term, if fiscal reforms are not adopted in the country.
Leave a Reply