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The Brazilian economy suffers from the rate hike and stagnates


The Gross Domestic Product (GDP) of the largest economy in Latin America did not meet growth expectations in the third quarter of the year, with an increase of only 0.4%

Banknotes of 50 Brazilian reais. Europa Press

The Brazilian economy grew less than expected by experts in the third quarter of the year, according to data from the Brazilian Institute of Geography and Statistics (IBGE).

The Gross Domestic Product (GDP) rose 0.4% in this period, compared to the previous quarter, a lower figure than the 0.7% expected by analysts, according to the Reuters agency.

The slowdown is the result of global conditions, such as the Russian offensive in Ukraine, as well as the rise in interest rates in Brazil.

Compared to the same quarter last year, the GDP of Brazil, the largest economy in Latin America, increased by 3.6%, slightly below the annual growth of 3.7% registered in the second quarter of the year.

The figure “highlights the weakening global economy and rising interest rates that are ending a recent period of strong growth,” William Jackson, emerging markets economist at British firm Capital Economics, wrote in a report to clients.

"And preliminary indicators suggest that the fourth quarter will be even weaker," he predicted.

The inflation generated in Brazil by global conditions, as well as government spending due to the pandemic, has led the Central Bank to aggressively raise rates.

From the first signs of a significant increase in the cost of living in March 2021, the country's monetary authority began an upward cycle.

The reference interest rate, known as the Celic, has gone from 2% to 13.75%.

Brazil was one of the first countries to react with a restrictive monetary policy in Latin America and, it seems, that the strategy is beginning to yield results.

In October, annual inflation fell to 6.47% from 12%, the highest level in two decades.

“Despite the loss of momentum and expectations that fourth-quarter GDP will be weak, as government stimulus measures fade and past rate hikes put increasing downward pressure on activity, the economy remains on track to register a solid growth rate this year,” said market strategist at Brazilian bank Mizuho Luciano Rostagno in a report on Thursday.

The breakdown of the data showed that the service and industrial sectors lost momentum, Rostagno said, while agriculture contracted 0.9% qoq.

The country is one of the largest food suppliers worldwide.

"On the demand side, investments advanced an additional 2.8% quarterly, private consumption expanded 1% and government spending increased 1.3%," said the specialist.

“On the other hand, net exports contributed negatively to growth, with imports rising higher than exports.”

Source: elparis

All business articles on 2022-12-02

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