Brazil GDP drops in 3rd quarter by 0.1%, reflecting stability, says IBGE

RIO DE JANEIRO, BRAZIL – The Brazilian Gross Domestic Product (GDP) decreased 0.1% in the third quarter of 2021, compared to the previous three months, in the seasonally adjusted series, reported the Brazilian Institute of Geography and Statistics (IBGE) on Thursday. Agriculture and Livestock fell 8%, Industry was stable, and Services increased 1.1%.

For Rebeca Palis, head of the National Accounts department of the Brazilian Institute of Geography and Statistics (IBGE), the 0.1% drop in the Gross Domestic Product (GDP) in the third quarter compared to the second quarter announced today by the institute, the second retraction in this comparison, cannot represent, in practice, a recession scenario.

There was, in the past, a consensus among economists and specialists that a country’s economy would be entering a recessionary period, with a second consecutive quarterly fall.

However, in the understanding of the IBGE specialist, this consensus is no longer used to determine with certainty that an economy is in recession. The technician noted that other indicators besides the GDP variation are used to measure the recessionary period in an economy.

The specialist called attention to another detail. Within IBGE, rates between -0.5% and +0.5% are considered neither high nor low but rather “stability” because they are close to zero.

“If it is really in recession or not, this [this parameter] of two negative quarters [in the GDP variation in the quarter compared to the immediately previous quarter] is no longer used,” she said.

WEAKENING OF ECONOMY

The Gross Domestic Product (GDP) for the third quarter of 2021 showed, on the one hand, a more significant than expected impact of weather problems on the agricultural sector, and on the other hand, construction helping the industrial sector aggregate and investment to perform better, albeit weakly.

Services grew, as expected, following a better opening of activities with the advance of the Covid-19 vaccination.

In the “full” result, the 0.1% drop over the second quarter came a little worse than the median of economists’ estimates, which was a stable one.

But nothing much off the expected track of a weakened economy, far from the scheduled performance at the beginning of the year, when the GDP for the first quarter grew 1.3%, much more than calculated by analysts. In this sense, it is worth noting the revision of the second-quarter GDP, which fell from a 0.1% loss to 0.4%.

The two consecutive negative results would configure technical recession, although the IBGE considers them as stable. The balance of this period in the red could be a downward revision in expectations for the GDP in 2021 among those who expected something closer to 5% growth.

In the remainder of the year, the Brazilian economy still has to deal with the shortage of inputs in Industry, the substantial rise in inflation, which erodes family income, the increase in interest rates, and a still-weak labor market precarious job openings, and low salaries.

This is without considering the dissemination of the Omicron variant, which can bring more uncertainty about the evolution of the pandemic.

In the third quarter, it was already expected that agriculture and cattle-raising would have a negative number, but not as much as shown by IBGE. The 8% drop over the second quarter was more than three times the expected 2.5% decline.

According to the institute, products that had a relevant harvest in the third quarter had a loss in productivity due to bad weather and production. This is the case with coffee, cotton, corn, oranges, and sugar cane.

In Industry, the aggregate result was stable, for an expected drop of 0.6% compared to the second quarter, which is still positive. Still, it was a result primarily benefited by the construction segment (up 3.9%).

All other segments fell, including the manufacturing industry, which shrank 1.1%. Problems in global supply chains continue to hurt this segment.

The performance of services, up 1.1%, was no surprise. The “other service activities”, which include many segments hurt by the pandemic, grew strongly: 4.4% over the second quarter.

On the demand side, while household (+0.9%) and government (+0.8%) consumption were in line with expectations, investment was better than expected despite the 0.1% drop. The median projection pointed to an intense retreat of 2.5% in the period. Here, once again, the construction sector played an important role.