Economic activity: Anything new?

BRAZIL ECONOMICS - Report 19 Nov 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The numbers for September indicate that the cyclical recovery continued in the third quarter, but without any signs of sustained acceleration. There are factors in place favorable to recovery: given the large negative GDP gap (high unemployment and low installed capacity utilization), inflation remains under control, so the interest rate can still be kept low for quite some time; there are some signs of expansion of the banking credit supply; and although the process of deleveraging by firms continues, significant progress has been made, favoring an increase in the investment rate. With a very small contribution from the external side, however, acceleration of cyclical recovery depends on a strong resurgence of fixed capital investments, which is necessary to expand employment and household consumption through the multiplier effect. A key element in this respect will be the efforts of the new government in pursuit of fiscal consolidation, to allay doubts about the solvency of the public sector, removing uncertainties which so far are still reducing fixed capital investments.

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