Amid a resilient yet decelerating consumer landscape, multinationals should continue targeting wealthier consumers less prone to ongoing price sensitivity. Multinationals should also consider minimizing price increases to protect market share among lower- and middle-income consumers. Finally, while the credit landscape will improve, the high level of indebtedness in Brazilian households will limit consumers’ ability to rely as intensely on credit by historical standards. Within the B2B sector, companies should remember that investment recovery will be slow and mostly materialize in H2 2024; therefore, ensuring the industry-level target properly reflects specific segment demand outlooks will be critical. While commodity-driven sectors will continue to experience a slowdown, they will remain more resilient vis-à-vis more credit-dependent sectors, notably manufacturing.
Overview
Brazil’s GDP remained stable in the last quarter of the previous year, aligning with FrontierView’s projection but slightly below market expectations at 0.1% QOQ. This, coupled with the national statistical agency’s recent adjustment of Q3 results from moderate growth (0.1% QOQ) to stability, resulted in a 2.9% economic growth for Brazil in 2023, following a 3% increase in the previous year. On the supply side, the highlight was the positive contribution of the agricultural sector, with a record-breaking growth of 15.1% YOY, supported by strong harvests and productivity gains. Another positive influence on the annual result was the performance of the Extractive Industries, with activity rising by 8.7% due to the increase in oil and natural gas, and iron ore extraction. Manufacturing and services also registered growth (1.6% and 2.4%, respectively). On the demand side, household consumption grew by 3.1%, slowing down from the results registered in 2022 but still showcasing important resilience that limited the negative results of H2 2023. Investment contributed negatively towards GDP, contracting by 3% as a result of still-high credit costs and high leverage of market participants.
Our View
As expected, Brazil’s robust performance in H1 2023 witnessed a notable deceleration in the second half, with Q4 results contributing a modest statistical carry-over of 0.2% into 2024. Despite the slowdown in H2 2023, agricultural activity directly contributed to around one-third of overall GDP growth, and the record-breaking crop had indirect positive effects on service sectors, particularly benefiting transportation. The results of 2023 were additionally buoyed by strong household consumption, driven by a resilient labor market, income transfers, and notable improvements in food inflation. Looking ahead to 2024, our longstanding growth forecast remains at 1.9%, a deceleration from 2023’s 2.9%, as the impacts of supply and demand shocks from agriculture and fiscal spending diminish. Household spending may experience a modest decline due to weakening employment dynamics but should be a key growth driver in 2024, given an improvement in borrowing costs and credit availability. Additionally, while investments contributed negatively towards growth in 2023, prospects for lower interest rates and government spending programs aimed at jumpstarting manufacturing, public infrastructure projects, and sustainability efforts will propel investment growth to 1.9% YOY.
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