While consumption and investment continue to outperform, Brazil's headline GDP figure signals a slowdown relative to previous quarters

Many of the factors that have driven economic growth thus far will slow over the course of the year

After two years of economic recovery buoyed by a return of in-person activities, rising commodity prices, and government stimulus, Brazil will confront a much less favorable demand environment in 2023. MNCs should expect that many of the factors that have driven economic growth thus far—service recovery and resilient consumption—will slow over the course of the year. On the positive side, Brazil remains at a relatively lower risk of social unrest relative to some of its other neighbors, which will carry a premium in the eyes of investors. MNCs should maintain a higher frequency of business review meetings, as 2023 is likely to continue to be unpredictable from demand planning and inventory management standpoints. 


Brazil’s economy grew 0.4% QOQ in Q3 2022. The overall economy is now at its highest level ever, leaving behind its previous peak in Q1 2014 and standing 4.5% above pre-pandemic levels. While Brazil’s economy still managed to grow, the latest results signal declining activity from the previous 1.0% QOQ registered in Q2. On the supply side, services remained the main growth driver, growing 1.1% QOQ. Overall, industrial activities increased 0.8% QOQ; construction remained the brighter spot, albeit decelerating from 1.5% in Q2 to 1.1% in Q3. Lastly, agricultural activities fell 0.9% QOQ, dragged down by lower productivity in important crops, such as sugar cane. Household consumption grew 1.0% in Q3 2022, sustained by the gradual resumption of in-person activities, job growth, and government programs, but to some extent affected by high inflation and interest rates. Meanwhile, investment continued to display solid performance, rising 2.8% QOQ, driven by construction activities and imports of capital goods.

Our View

Based on the Q3 results and on the National Statistic Agency’s revision of growth in previous quarters, we revised our 2022 GDP growth forecast to 2.2%, from 3.1%. While the revision of the time series suggests greater activity momentum, we continue to observe signs of deceleration as consumption headwinds increase amid tighter financial conditions, and as a result, we expect Brazil to grow 0.7% YOY in 2023. In the short term, a resilient labor market and additional fiscal spending could lend some support to consumers, but overall we expect the lagged effects of the central bank’s monetary tightening to continue to materialize. Moreover, confidence indicators have taken a hit in the past few months. In particular, the average household budget is increasingly constrained by debt service, as wages have lagged behind the job recovery in labor markets this year. Finally, the external environment could remain challenging due to rising global interest rates and geopolitical events.

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