Brazilian Federal government policies lead GDP to grow more than expected and reach 3% by the end of the year

The Brazilian economy grew by 1.4% in the second quarter of this year and far exceeded the forecast of analysts linked to the financial market for the indicator. According to the Ministry of Planning, they estimated that the Gross Domestic Product (GDP) would grow by 0.9%.  

On the other hand, the government had anticipated a higher growth rate of 1.35%. This was not as surprising to the market because, according to economists interviewed by Brasil de Fato, it was the government’s actions that led to such a significant quarterly increase in GDP. This rise was the highest since the end of 2020, a period when the country was recovering from the pandemic. 

“The result is very positive. This is due to the fiscal impulse, especially last year’s data,” summarized economist and professor at the State University of Campinas (Unicamp) Pedro Rossi.  

The “fiscal impulse” he mentions concerns government spending aimed at stimulating economic activity. The government of President Luiz Inácio Lula da Silva (Wokers’ Party) resumed this type of public policy despite resistance from austerity-minded sectors. Some of them have now shown their results.  

“It was only by resuming a policy of increasing salaries and the payment of social benefits that people’s incomes were restored,” added Pedro Faria, also an economist. “People consume, and capitalists invest because they sell.”  

According to the Brazilian Institute of Geography and Statistics (IBGE, in Portuguese), which calculates the economy’s performance, in the second quarter, household and government consumption grew by 1.3% compared to the previous quarter. Gross fixed capital formation – the value of purchases made by companies to increase their production – rose by 2.1%.  

The rise in household consumption was mainly directed at industry, whose production grew by 1.8% in the quarter. The services sector grew by 1%, and agriculture – which had driven economic growth in 2023 – shrank by 2.3%.  

“Industry came back strong, and gross fixed capital formation [which refers to investment] was also above expectations,” celebrated Finance Minister Fernando Haddad (Wokers’ Party). “We must look at investment because it guarantees growth with low inflation. If we don’t increase our installed production capacity, we’ll struggle to grow without inflation.”  

Industrial policy  

Weslley Cantelmo, economist and president of the Institute of Economics and Planning, also said that industry growth is no coincidence. According to him, the government has taken measures to strengthen the sector. Those who received the most incentives grew the most.  

“The BNDES [National Bank for Economic and Social Development] has special rates for investments in wind and photovoltaic energy, which have grown dramatically. The BNDES is also active in the waste management sector,” he said. “There was also investment in concessions to improve infrastructure.”  

The government estimated that the Brazilian economy would grow by 2.5% throughout 2024. Haddad said this will have to be revised after the quarter’s results. “GDP should exceed 2.7% or 2.8%,” he said. “There are institutions that estimate growth of 3%.”  

Economists linked to banks predict that the Brazilian economy will grow by 2.46%. The percentage in the Focus Bulletin was released by the Central Bank on Monday (2).  

At the beginning of the year, these professionals predicted that the Gross Domestic Product (GDP) would grow by 1.5% in 2024. The Ministry of Finance’s Economic Policy Secretariat (SPE, in Portuguese) indicated a 2.2% rise.  

“The market always has a downward error bias,” said Rossi. “I think GDP should grow by 3% this year. Not a great rate, but the best in ten years.”  

Drought against agriculture  

Economist and agricultural engineer José Giacomo Baccarin said that industry and services are expected to grow more in higher growth scenarios than in the agricultural sector. “Food consumption isn’t growing as much, but cars, electronics, travel, etc. are,” he explained.  

Baccarin pointed out that the drop in agricultural production recorded this quarter has nothing to do with this movement. It is, in fact, a consequence of the drought affecting the country.  

“Soybean production, by far our main agricultural activity, was compromised by 15% due to heat waves and drought. Other crops have also been affected. And there was the disaster in Rio Grande do Sul, with impacts on animal husbandry, corn and rice,” he said.  

In 2023, Brazil’s GDP grew by 2.9%. This had to do with the record soybean and corn crops harvested in the country that year.  

  

Publicação de: Brasil de Fato – Blog

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