Economic Analysis - Quick View: Still No Signs Of A Recovery - APR 2017

The Latest: Brazilian economic activity contracted 0.2% m-o-m in December. On a year-over-year basis, activity was down 1.8%.

Implications: December's print undermines hopes that a growth recovery has begun in Brazil, after activity expanded 0.1% m-o-m in November. Although in year-over-year terms the contraction was the shallowest since June 2015, monthly activity contracted by an average of 4.4% y-o-y in 2016. This suggests that our estimate for a real GDP contraction of 3.5% in 2016 may have been overly optimistic on growth in Q416.

What ' s Next: We expect economic activity growth to turn modestly positive over the coming quarters, driven largely by investment. 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.

Bottom Passed, But Weakness Persists
Brazil - Monthly Economic Activity Index
Source: IBGE

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