The first quarter was likely a high-water mark for growth this year before what’s expected to be a bruising race between Bolsonaro and Luiz Inacio Lula da Silva. Expanded access to vaccines against Covid-19 and government aid to the poor have ensured demand. Still, double-digit inflation and borrowing costs are marring the outlook for Latin America’s largest economy.
The beginning of the year was marked by the omicron wave of the coronavirus that crimped business, but services still grew 1% as lingering health restrictions ended. The agricultural sector shrank 0.9% and investment plunged by 3.5%, the statistics agency said.
What Bloomberg Economics Says
“Growth kicked off 2022 at full speed, but may end the year with its foot off the pedal — if not a shift into reverse. First-quarter growth was driven largely by the effects of economic reopening, but we expect the economy to hold stable or even mildly contract in the quarters ahead, especially as the lagged effects of steep rate hikes since March 2021 materialize.”
— Adriana Dupita, Brazil economist
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In recent months, Brazil has seen a string of better-than-expected indicators such as retail and employment, prompting many economists to raise their year-end GDP projections. Policy makers say the data is evidence the trend will carry.
“Brazil is one of the only cases where growth forecasts increased for 2022,” central bank President Roberto Campos Neto told lawmakers earlier this week.
Analysts caution, though, that the population is quickly losing its purchasing power. The quarter’s main drivers, services and family consumption, “are precisely the growth engines that will suffer the most from double-digit inflation and very tight domestic financial conditions,” said Alberto Ramos, chief Latin America economist at Goldman Sachs & Co LLC.
Thursday’s print is “not representative of the underlying strength of the economy moving forward,” he said.
Russia’s invasion of Ukraine is pushing up consumer prices to near a two-decade high. The central bank is extending a tightening cycle that has already raised the benchmark Selic 10.75 percentage points, hikes that are expected to bite hard on the economy later this year.
Just four months before elections, Bolsonaro is under mounting pressure to ease the soaring coast of living. Recent polls show that he is trailing Lula by 10 percentage points or more, and that he is widely blamed for the spiking cost of gasoline — a key voter concern.
The far-right president is pushing congress to help mitigate the inflation pain by passing fast-track legislation to cap local fuel taxes. On Wednesday, Folha de Sao Paulo, one of Brazil’s main newspapers, reported that the government is studying a state of emergency decree to provide subsidies.
“We expect the second quarter to be positive, but with less strength,” said Danilo Passos, an economist with Wealth High Governance, a Sao Paulo asset manager.