What Explains Brazil’s Surprising GDP Growth?

The country’s GDP grew by 0.9% in second quarter, and 3.2% in the 12 months to June, above market expectations. Bloomberg Línea consulted nine economists to explore the reasons why

What Explains Brazil’s Surprising GDP Growth?
September 01, 2023 | 01:30 PM

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Bloomberg Línea — With gross domestic product (GDP) growth higher than expected in the second quarter of 2023, up 0.9% quarter-on-quarter, financial market analysts and economists have begun to revise upwards Brazil’s growth forecast for this year.

The growth rate was higher than expected by the market consensus, which was 0.3% compared to the first quarter.

The latest median of projections, indicated by the central bank’s focus survey, pointed to growth of 2.31% in 2023. Now, the new activity figures show that the economy should grow by around 3%.

With the latest figures, the Brazilian economy reached a high of 2.65 trillion reais in the period, while in the 12 months to June, GDP grew by 3.2%.


Industry grew the most (0.9%), followed by the services sector (0.6%). Agriculture and livestock, on the other hand, fell by 0.9%. Compared to the same period in 2022, agriculture grew by 17%, industry by 1.5% and services by 2.3%.

Economists consulted by Bloomberg Línea highlighted some points in the data released by the Brazilian Institute of Economics and Statistics (IBGE): the resistance of the country’s economy to the high level of the Selic rate, at 13.25% per year, and the strength of agribusiness and the extractive industry.

Below are comments from economists and financial institutions consulted by Bloomberg Línea and their expectations for GDP growth at the end of 2023:


Natalia Cotarelli and Matheus Fuck, Itaú

Economists Natalia Cotarelli and Matheus Fuck write Itaú's macroeconomic analysis. The analysts point out that the agricultural sector came in above estimates, even with the quarter-on-quarter drop. With the result, the bank will revise upwards its GDP growth forecasts, and whose calculations indicate that the second half of the year began with a statistical burden of 3%. Until then, Itaú's forecast was for GDP growth of 2.5% this year.

“Although the fall in the agricultural sector in 2Q23 was less than expected, after record growth in 1Q23, GDP ex-agro [which excludes this sector] also surprised positively, accelerating to 1.0% quarter-on-quarter in 2Q23, from 0.4% in 1Q23. The resilience of the labor market and fiscal stimulus boosted growth in the period. With this result, our projection for this year’s GDP (now at 2.5%) should be revised upwards,” they said in a statement.

Rodolfo Margato, XP Investimentos

Economist Rodolfo Margato pointed out that sectors that are not very sensitive to monetary policy were the ones that performed well. In the case of agriculture, despite the quarterly drop, the annual comparison showed a 17% increase. In the case of industry, which grew in both comparisons, the extractive sector was also a highlight as it is less sensitive to high interest rates.

“The services sector was in line with expectations, showing resilient growth, albeit with a loss of traction. All subsectors grew, which indicates a resilient economy,” said the economist.

As a result, XP’s economist predicts that GDP will grow by around 3% this year.

Alberto Ramos, Goldman Sachs

With the result for the second quarter, US bank Goldman Sachs revised upward its expectation for GDP growth this year to 3.25% after having forecast growth of 2.65%. This week, the median market forecast in the Focus Bulletin was 2.31%.

“Going forward, we expect activity to benefit from fiscal and parafiscal stimuli (robust federal fiscal transfers to low-income households with a high propensity to consume), expansion of the real wage bill and declining food inflation. However, the fading momentum of the economic reopening, domestic monetary and financial constraints, high levels of household indebtedness, low levels of economic slack, moderating job creation, and the incipient turn in the credit cycle are expected to generate headwinds for activity.”


Sergio Vale, MB Associados

The chief economist at MB Associados, Sergio Vale, pointed out that the economy will grow by 3% in 2023 even with a stagnant second half of the year. “Our expectation has gone from 2.5% to 3% for the year, and that’s if growth is zero in the third quarter and 0.2% in the fourth. So there’s room for surprise.”

Sergio Vale also pointed out how commodities were responsible for the rise last quarter, taking into account the extractive industry and agriculture.

“Commodities were responsible for 50% of the growth in the first half of the year, not to mention the sector’s impact on the rest of the economy. So in the end the percentage is even higher than 50%.”

“When we look at this result, the prospect is that, until the end of the year, there will still be this impact from commodities, mining and oil. But more than that, we have the fall in food inflation - and then there’s more disposable income for the population - and the beginning of the reduction in interest rates, with an impact towards the end of the year.”


André Perfeito, economist

Economist André Perfeito, formerly of Necton Investimentos, pointed out that 3% should be the level at which the country grows in 2023.

“The result was strongly influenced by ‘Household Consumption’, which rose 0.9%, and this boost is undoubtedly due to the rise in average real usual income, which has been rising due to inflation under control and measures more linked to increased demand on the part of the federal administration. It’s also worth noting the 0.7% rise in ‘Government Consumption’ this quarter.”

This boost will still be felt in the coming quarters, according to Perfeito, which will explain a rise in GDP of at least 3% in 2023.


The positive impact on the financial market would mainly be on shares in companies linked to the domestic market in the third quarter, he said.

Étore Sanchez and Guilherme Sousa, Ativa Investimentos

For Étore Sanchez and Guilherme Sousa, from Ativa Investimentos, rising activity could result in a rebound in inflation, since there is evidence that the economy is less sensitive to the effects of the central bank’s monetary tightening. Thus, the cycle of cuts in the Selic rate may be interrupted in a less prolonged period, at 10.50% per year, in the second quarter of 2024.

“In general terms, the figure is optimistic in itself, but it is still far from denoting structurally robust growth in the economy, since it was highly associated with basic items, while investments remain depressed,” said the note signed by Sanchez and Sousa.


Ativa revised the GDP from 2.2% to 2.7%, reflecting the resilience of agriculture. Under the influence of the statistical burden, the outlook for the 2024 GDP also rose, from 1.0% to 1.3%.

Gabriel Couto, Santander

Santander Brasil estimated growth of 0.1% for the quarter, one of the lowest forecasts and below the median of 0.3%. This would result in a GDP of 1.9% at the end of 2023. With the latest data, however, the bank has put the forecast under review.

“The performance implies a 3.1% charge for 2023. Therefore, our GDP growth forecast for 2023 of 1.9% is currently under review, with risks tilted to the upside. Although financial conditions remain at critically restrictive levels, economic activity indicators have shown high resilience amid a still tight labor market,” pointed out economist Gabriel Couto.