Brazil’s economy rebounds in third quarter

Brazil’s economy rebounds in third quarter

Many attribute improved performance to cash payments set to expire at end of this month

The Brazilian economy rebounded in the third quarter, bolstering hopes among policymakers that the country’s performance during the coronavirus crisis will be better than initially expected.

Latin America’s largest economy grew 7.7 per cent compared with the second quarter, when it shrank 9.7 per cent — greater than the total loss in any of nine recessions that have struck Brazil in the past 40 years.

Compared with the same quarter last year, gross domestic product shrank 3.9 per cent. Most economists now believe that the country will round out the year with an annual decline of about 5 per cent.

This would be an improvement on earlier forecasts of an 8 per cent contraction and 9 per cent contraction by the World Bank and IMF, respectively, and would represent one of the best performances in a region that has been hit hard by Covid-19. Neighbouring Argentina is expected to shrink 7.3, according to World Bank data, while Mexico is facing a contraction of 7.5 per cent.

“The economic measures that we took to fight the effects of the pandemic really helped the Brazilian economy. When we look to the next year, we have the strength to have a good year — something around 3 per cent growth,” said Adolfo Sachsida, secretary for political economy at the Ministry of Economy.

“The third quarter was driven by industry and commerce. What is important now is the recovery of services. And they are recovering step by step and that will be seen in the figures from the last quarter of the year.”

Many economists attribute Brazil’s better than expected performance to the distribution of cash payments to people during the coronavirus crisis. Between April and September, the government handed out $120 each month to some of the country’s poorest citizens — sometimes worth more than their typical salary. The amount was cut to $60 from September and is due to expire after this month.

The programme boosted the popularity of President Jair Bolsonaro, but tore a hole in Brazil’s already shaky finances. With public debt-to-GDP ratio expected to reach 95 per cent this year, investors are increasingly sounding the alarm about the sustainability of the emerging economy’s fiscal position.

But some fear that the withdrawal of the coronavirus cash will trigger a fresh bout of economic paralysis.

“There are still questions about whether economic resumption will continue. With the cut in emergency aid [from September] you already see an impact on the consumption of goods. This already indicates that in the fourth quarter there will be a slowdown in the pace of growth,” said Luana Miranda, a researcher at the Brazilian Economy Institute.

There is also concern about a potential second wave of coronavirus cases, which might trigger further economic restrictions. The state of São Paulo this week announced it was restricting the opening hours and capacity of bars and restaurants after a surge in cases last month.

“I see a second wave as a major concern for 2021,” said Thiago Xavier, an economist at consultancy Tendências.

“And if you prolong the emergency aid, you create concerns for the fiscal framework and our financial conditions. It adds uncertainty and this perception of risk influences our liquidity.”

Additional reporting by Carolina Pulice