Brazil’s economy up 2.9% in 2023 but stagnates in Q4

FILE PHOTO: Containers in line to be loaded at a cargo terminal at the Port of Santos, in Santos, Brazil September 16, 2021. REUTERS/Carla Carniel/File Photo

By Gabriel Araujo and Peter Frontini

SAO PAULO (Reuters) -Brazil ended 2023 with economic growth of 2.9%, official data showed on Friday, way above what economists expected for most of last year but maintaining in the fourth quarter a slowing trend that should cripple its expansion in 2024.

In a boost for President Luiz Inacio Lula da Silva in his first year in office, gross domestic product (GDP) in Latin America’s No.1 economy defied gloomy forecasts that in early 2023 pointed to a mere 0.8% calendar-year growth amid stiflingly high interest rates.

Activity in the country got a boost from agriculture in early 2023, with booming exports of commodities like soybeans, while a resilient job market and the positive impact of welfare programs on consumption helped it for most of the year.

Economists expect that to change in 2024 as Brazil faces a drop in agricultural output and borrowing costs remain high, with the central bank’s benchmark interest rate now at 11.25% even after a total 250 basis points of cuts since August.

In the fourth quarter of 2023, according to statistics agency IBGE, Brazil’s GDP was flat, in line with the previous quarter but slightly missing the 0.1% growth expected by economists polled by Reuters.

On an annual basis, growth in the October-December quarter came in at 2.1%, also below the 2.2% rise economists had expected.

“The stagnation in Brazil’s GDP in the fourth quarter and the decline in household consumption confirmed that the economy lost momentum sharply,” Capital Economics’ chief emerging markets economist William Jackson said.

“While we expect a pickup in growth in the coming quarters, we’re now more confident in our below-consensus 2024 GDP growth forecast of 1.3%.”

The Brazilian government, meanwhile, reaffirmed on Friday it expects 2024 growth of 2.2%, saying in a statement that the latest figures were “compatible” with its forecast of an increased activity expansion in the first quarter.

Lula is even more optimistic and has been saying he is convinced the country will manage to post economic growth of at least 3% this year, once again overshooting market expectations that currently stand at around 1.75%.

The fourth quarter results reflected a faster expansion in Brazil’s industrial sector, led by extractive segments like mining and oil, which offset a further deceleration of agricultural output. Services were up moderately.

Finance Minister Fernando Haddad praised the latest figures, saying they inspire confidence that the country will achieve the estimated 2.2% growth this year.

The ongoing monetary easing cycle should help the economy, Haddad told reporters, pointing out that there is room for “more interest rate cuts and more economic growth” while also noting that tax revenue has been faring well in the first quarter.


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