Analysis: Services sector supports economic growth in Brazil

The services sector, which accounts for 70% of Brazilian output, has escaped a scenario of high inflation and high-interest rates to steer the growth of the national economy in the second quarter of 2022.

The positive performance limits the recent losses in the industrial and commercial sectors.

According to forecasts by the Central Bank (BC) and the Getulio Vargas Foundation (FGV), gross domestic product (GDP) – the sum of all goods and services produced in the country – will end the period between April and June in positive territory.

The official data from the IBGE (Brazilian Institute of Geography and Statistics) will be released next Thursday (1) and should confirm the fourth consecutive quarter of growth for the Brazilian economy.

Juliana Trece, coordinator of the FGV GDP Monitor, explains that the positive performance of the economy was driven by household consumption and gross fixed capital formation.

“The incentives for the economy, such as the release of the FGTS and the reduction of prices for some products considered important, have had a positive impact, at least in the short term,” she says.

For economist and member of the IBGC (Brazilian Institute of Corporate Governance) Carlos Caixeta, the performance of the services segment has been boosted by measures to boost consumption after reducing transport restrictions to contain the new coronavirus pandemic in the country.

The volume of services provided in Brazil decreased by 0.2% at the beginning of the second quarter but recovered in the following months and registered an increase of 2.2% since March this year.

This means that the sector is 7.5% above the level of February 2020, the last month without social isolation measures.

On the other hand, industry and trade, which also have a significant share in the national GDP, lost strength. These sectors ended the quarter with losses of 0.4% and 1.4%, respectively, in July, according to IBGE data.

2ND SEMESTER

Although he sees a slowdown in the economy due to the impact of rising interest rates and high inflation in the second quarter, Sung believes an improved business environment will drive GDP performance in the coming months.

“The good recovery of the labor market and fiscal measures, such as the PEC aid, will give new impetus in the third quarter,” predicts Sung, when he points out that this scenario will help support the consumption of goods and services.

On the other hand, Juliana is betting on a slowdown in economic activity in the second half of the year, even though she expects inflation to fall.

The assessment considers the moment when the key interest rate reached 13.75% per annum, the highest level since 2016.

Caixeta also highlights the potential of increasing the value of Brazilian aid distributed to the neediest families by 50% to boost the national economy but cites the level of Selic as an obstacle.

“The R$200 increase in Brazilian aid stimulates the economy by about R$26 (US$5) billion, but more effective growth is still hindered by the slowdown in the global economy, high-interest rates in Brazil, and the end of fiscal stimulus,” the economist adds.