The deceleration of GDP: Growth of only 2.2% in 2018

BRAZIL ECONOMICS - Report 16 Apr 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

At the start of the year (see the Weekly Bulletin “Economic Activity Recovering More Strongly”, of February 5th), a large number of indicators portended faster growth of investments. Among these were the decline in the stock of new residential units and the improved credit conditions for businesses. Also, the reduction of loan default and revitalization of the capital market were combined with signs of maturation of the microeconomic reforms in the credit market. Finally, due to the lower real interest rates and increase in real labor income, the deceleration of consumption in the last quarter of 2017 was interpreted as just a fluctuation around a favorable trend. However, the civil construction sector remains in the doldrums, and there are no signs yet of a significant rebound of fixed capital investments. And now, what appeared to be just a temporary deceleration of household consumption has turned out to be more persistent, and there are good reasons for this. Despite the low real interest rates, the driving force of the recovery – household consumption – has been losing steam, leading us to revise our projection of GDP growth for this year to only 2.2%.

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