Economists were taken by surprise with the data for the Brazilian economy, especially in March, and raised their projections for the GDP in the first quarter of this year, opening space for a more positive view of the activity both in the following three months and in 2022. The year, however, is likely to have two opposite configurations: a stronger economic performance in the first half of the year and a likely technical recession (two consecutive quarters of falling GDP at the margin) in the second half.
The GDP is expected to have grown 1% in the first quarter of 2022, compared to the fourth quarter of 2021, seasonally adjusted, according to the median of the projections of 82 financial institutions and consulting firms consulted by Valor. Almost half of the respondents bet on even higher increases, with the maximum reaching 2.6%, for a minimum of 0.1%. Only two banks expect a drop. In comparison with the same period in 2021, the median of the projections of 76 institutions indicates a high of 1.7% from January to March this year.
The forecasts for the GDP in 2022 have moved a lot and in a short time. Since the last Valor survey, with 72 institutions and published on May 12, the median went to 1.4% now from 0.8%, with 96 estimates. The projections vary from zero to 2%. The Central Bank’s Focus survey, which serves as a compass for the market and the monetary authority, usually has between 80 and 100 respondents, but has not been published since April 29 because of the civil servants strike.
The GDP increase in the first quarter is expected to be boosted on the supply side by services, which, according to the median, rose 1% compared to the fourth quarter of 2021 (3.3% compared to the first quarter of last year). “Transportation is likely to lead, which has to do with the return of circulation and a boost from e-commerce to the postal services. And there is a big highlight for “other services’, which include those provided to families and which went through a certain euphoria after the omicron wave,” says Tiago Negreira, partner and economist at Macro Capital.
Even trade — which is part of services in the National Accounts — will probably offer a positive contribution for the quarter compared to the end of 2021, he says. “The drop in unemployment seems to be contributing, with recovery in the total wage bill, in addition to the government’s own aid programs, authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts, but that is something for the second quarter.”
The recovery in services (although somewhat delayed by the omicron) was already on the radar, so that, for Pedro Ramos, chief economist at Sicredi, there were surprises in other segments as well. “Industry had shown weakness in previous quarters and there was a moment when it was thought that agribusiness might weaken, because of crop failures, but we should still see growths on the margin and we may have record harvests in the year,” he says.
Valor’s survey indicates a rise of 0.4% in industry and 1% in agriculture in the first quarter, compared to the three immediately preceding months. In relation to the first quarter of 2021, however, they are expected to fall by 1% and 3%, in that order.
On the demand side, in line with the expansion in services and a more resilient trade, the positive contribution to the GDP from January to March should come from household consumption. The median expectation is for 1% growth in the margin and 2.5% in relation to the same period in 2021.
The Gross Fixed Capital Formation (GFCF), on the other hand, is expected to remain stagnant in the first quarter, which, according to economists, is not necessarily a bad thing: “It rose 17% in 2021, it was at a very high level. If you think that this investment was raised based on interest at 2% and a lot of transfer to the economy, we could imagine that, when the Selic reached the level that we project, this will go down,” says Mr. Ramos.
The GDP of the first quarter will be very important for the growth of the year, according to Luana Miranda, economist at GAP Asset. Based on data from the fourth quarter of 2021, the carryover for 2022 was 0.3 percentage points. With the consolidation of the first quarter, for which GAP expects a high of 1.3%, the carryover would rise to 1.9 points, according to Ms. Miranda.
“We do not have a high projection of 1.9% of GDP this year because we expect a fall in the second half due to the lagged impacts of monetary policy,” she says, predicting a 1.5% growth in Brazilian activity in 2022.
Ms. Miranda recalls that, after the better-than-expected result in the first quarter of last year, there was a wave of optimism that pushed up the GDP estimates for 2021. One has to be careful with that, she says. “I believe the first half of the year is given and will be good. The question is what the impact will be in the second half.”
Preceding data shows household services still in the spotlight in April, Ms. Miranda says. For the second quarter GDP, the median expectation of economists is a deceleration, but there would be a rise of 0.4%, compared to the first quarter.
“The carryover from the first quarter to the second quarter is positive, but the growth factors are already starting to become more limited,” says Mr. Negreira, with Macro Capital. The manager, who projects 1.9% for the GDP in 2022, expects, as do most economists, contractions in the third and fourth quarter of the year.
Besides monetary tightening, the exhaustion of the process of reopening services and the uncertainties surrounding the electoral process will probably weigh. One question is also whether the labor market will remain resilient given the worsening financial conditions, Ms. Miranda notes. At some point, she says, this will hit the companies.
Tendências Consultoria, which has a more modest GDP estimate for 2022, of 0.6%, highlights the role of inflation, systematically revised upwards, in the perspective of weaker quarters ahead. The international scenario is not very helpful either, points out economist Thiago Xavier. Despite bringing commodities up, it has been, he says, the stage for downward revisions of growth, inflation upwards, with monetary tightening. “The world, from the point of view of growth, has been a frustrating and limiting factor for the Brazilian GDP.”
Source: Valor International