Agriculture consolidates its place as the main growth driver during Q1, while industrial activities take a hit

Despite a boost from agriculture, demand and investment data portray a less exciting picture for growth

While the stronger-than-expected growth figures in Q1 place Brazil on the path of higher GDP growth for 2023, the upside will remain heavily concentrated within specific sectors. Firms should continue prioritizing agriculture as a resilient segment, with greater opportunities in the form of higher exports on the demand side and services on the supply side. However, the latest figures do not represent a significant shift in the demand and investment views. As a result, companies should continue targeting upper-income customers with more resilient discretionary spending or leverage lower-cost products to account for ongoing price sensitivity. 


The Brazilian economy grew 1.9% QOQ in the first quarter of 2023 from -0.1% QOQ in Q4 2022. While headline GDP figures came above consensus expectations—supported by strong agriculture activity—demand data suggests a weakening outlook, with investments falling for a second quarter amid accommodating private consumption. On the supply side, agriculture confirmed its role as the primary driver of quarterly performance, surging 21.6% QOQ, driven by high growth in soy production, which represents roughly 70% of the Q1 crops. Services grew 0.6%, partially aided by surges in transportation activities (in turn, buoyed by the strong agriculture sector). Lastly, output from the industrial sector fell 0.1% QOQ, dragged down by manufacturing and construction. On the demand side, household consumption growth decelerated to 0.2% QOQ, its weakest growth figure since Q2 2021, and investments contracted by 3.4% QOQ, impacted by tighter financial conditions and softer confidence indicators. 

Our View

We have revised our 2023 GDP growth forecast to 2.1% from 0.9% to take into account the Q1 surprise and its impact on short-term growth dynamics. As noted, the stronger-than-expected Q1 performance was mainly a result of strong agricultural growth figures, which contributed about 1.7 percentage points to the 1.9% QOQ growth rate. As a result, we now expect to see lingering growth effects in Q2, sustaining overall GDP growth throughout H1. However, despite the agricultural sector’s impressive over-performance, slowing demand and investment contraction portray a less exciting picture and will weigh negatively on GDP activity in H2 as agricultural sector momentum normalizes. Household consumption will likely continue to lose dynamism as job growth slows amid tight monetary policy conditions. Some short-term demand support is likely to kick in from recent government decisions (e.g., the increase to minimum wages and the early 13th salary payment), but household consumption will continue to be constrained by debt servicing. In addition, from an investment standpoint, activity will continue to be negatively impacted by slowing demand and tight financial conditions.

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