Brazil’s Q2 GDP Affected by Lower Consumer Spending

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Brazil’s Gross Domestic Product (GDP), closed the second quarter of 2016 down by 0.6 percent compared to the previous quarter, according to the IBGE (Brazilian Statistics Bureau). This is the sixth consecutive decline in quarterly readings for the GDP showing that the economy is still struggling and recession is far from over.

According to consultancy group Capital Economics, the decline during the second quarter of 2016 was due to another large decline in consumer spending.

“The contraction in GDP was once again led by consumer spending, which dropped by 0.7 percent in the quarter,” said Neil Shearing Chief Emerging Markets Economist at the consultancy firm.

When compared to the second quarter of 2015, the decline in GDP was significantly greater, of 3.8 percent. With the result, the GDP for the first six months of the year registers a decrease of 4.6 percent compared to the first six months of 2015.

According to the IBGE on the production side a weak harvest cycle led the agricultural output to decline by 2.0 percent while services dropped by 0.8 during the quarter. The Bureau however showed that investments rose by 0.4 percent, the first increase in eleven quarters.

“A turnaround in investment was always likely at some point given the sheer extent of the falls seen over the past two years, but this may also reflect the fact that business confidence is starting to return under the Temer government,” analyzed Shearing.

As for the short-term, the consultancy group forecasts the maintenance of pressure for at least another four quarters, until the middle of 2017, although the situation is likely to improve slowly.

“Investment should continue to recover and we expect net exports to make a positive contribution to growth in the second half of this year – although policymakers will remain under pressure to resist further appreciation in the real,” concluded the analyst.