Economic Analysis - Quick View: Q416 Growth Print Illustrates Difficult Road Ahead - MAY 2017

The Latest: Brazilian real GDP contracted 2.5% y-o-y in Q416, bringing full-year growth to -3.6%. Exports and gross fixed capital formation (GFCF) led losses, falling 7.6% and 5.4% y-o-y respectively in the final quarter.

Implications: The weak Q416 figures come in line with our expectations and suggest that a recovery is not yet imminent ( see ' Quick View: Still No Signs Of A Recovery ' , February 16). While headline growth came in line with our forecast for a 3.5% contraction, real exports outperformed our expectations, while real imports underperformed. From a sector perspective, civil construction led losses, contracting 7.5% y-o-y, its 11th consecutive quarterly fall. These figures suggest that the fallout from ongoing corruption investigations remains a weight on investment that will likely persist into 2017.

What's Next: We expect economic activity growth to turn modestly positive over the coming quarters. Although growth remains negative, the economy has bottomed and business sentiment is improving as inflation falls, interest rates are slashed and the government pursues structural reforms. That said, elevated unemployment and fiscal consolidation efforts will weigh on consumption, while significant underutilised industrial capacity suggests a large output gap to be filled before investment in new productive capacity begins to grow. We forecast real GDP growth of just 0.8% in 2017.

Q416 Offers Few Signs Of Growth To Come
Brazil - Real GDP Growth, % y-o-y
Source: IBGE, BMI

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