Firms should continue to align with their local partners in terms of the supply chain, as disruptions across the globe are still expected until H1 2022. Additionally, despite the continuation of a positive external environment, MNCs should expect export revenues to decrease due to stabilizing commodity prices. Firms should prepare for high political uncertainty to unfold in 2022 amid a highly polarized electoral landscape. While the risk of broad social unrest remains low at the moment, ensure that your local teams are engaging with political leaders across the aisle and closely following the major developments surrounding the 2022 elections, as they will impact economic growth prospects in 2022.
Brazil’s economy contracted 0.1% QOQ in Q3, according to results recently released by the country’s statistical agency (IBGE). These results were in line with FrontierView’s Q3 forecasts (-0.1 QOQ). Year over year, Brazil still showcased a 4.0% growth. On the supply side, the results show that services, which account for more than 70% of the national GDP, grew 1.1% QOQ, continuing to reap the benefits of economic reopening and the vaccine rollout. However, despite the positive performance in services, a drop in agricultural and industrial production dented Q3 growth. The agricultural sector, typically a booster for the Brazilian economy, saw an 8.0% contraction QOQ, impacted by the adverse weather conditions and the end of the soybean harvest, while industrial activity remained stagnant, 0.0% QOQ, still constrained by supply chain disruption as well as the rise in energy prices. On the demand side, private consumption grew 0.9% QOQ stable, explained by improvements in the labor market and faster vaccination rollout.
After two consecutive quarters of mild economic contraction, Brazil finds itself in a technical recession. The latest results showcase that, after returning to pre-pandemic levels, Brazil’s economy continues to decelerate ahead of 2022. While Q3 results will not prevent expressive economic growth from materializing this year, projected at 4.9%, the loss of steam points to lower performance in 2022, forecasted at 1.8% YOY. Moreover, there are a variety of different domestic and external factors that will continue to weigh on Brazil’s economic performance; bottlenecks along the supply chain, lower purchasing power due to high inflation, and rising political uncertainties will slow the pace of economic growth.
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