WorldGDP walks sideways and drops 0.1% in the second quarter with a...

GDP walks sideways and drops 0.1% in the second quarter with a drop in industry and agribusiness

The economy in Brazil walked sideways in the second quarter of this year, and the Gross Domestic Product (GDP) registered a result of -0.1% between April and June, compared to the previous quarter, according to data released on Wednesday by the Brazilian Institute of Geography and Statistics (IBGE). In relation to the first quarter of last year there was an increase of 12.4%. The basis for comparison, however, takes into account precisely the most complicated period of the coronavirus pandemic in 2020.

The biggest falls registered in the quarter were in the agricultural sector, with a decrease of 2.8% in the quarter, and in industry (-0.2%). The latter was affected by the rise in costs in the electricity industry, for example, which is suffering from the effects of the water crisis, offset by the use of thermoelectric plants, which are more expensive than clean energy. There is also a record of the lack of inputs in the industrial sector, as in the case of the automotive segment. The mining and quarrying industry, in turn, increased 5.3%, and construction, 2.7%.

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The IBGE figures highlight the 9.4% increase in the trade balance of exports, especially the soy crop, benefited by the rise in commodities in the international market. But projections point to lower agribusiness production in the coming months.

Household consumption, in turn, tied with the first quarter, which points to a limited effect of the Government’s emergency aid and the slight improvement in the labor market registered in the second half, since income has not been expanding and at the same time, rising prices affect purchasing power. “The rise in inflation harmed the real wages available in the hands of families for spending and the interest rate increased during this period”, explained Rebeca Palis, coordinator of national accounts at the IBGE.

The Central Bank has increased the Selic rate to tame inflation, which shows a side effect for the productive sector, such as more expensive credit to invest. The Selic went from 2% in January this year to 5.25% this month. On the supply side, productive investments made by companies (in new businesses or capital goods) fell by 3.6% compared to the previous quarter.

Between January and March, economic activity had grown 1% compared to the same quarter in 2020, and 1.2% compared to the previous three months (October to December of last year).

The GDP data comes at a time of enormous political tension in Brazil, which spills over into the economy and this week mobilized the business community to manifest itself for stability in favor of business — including banks, through the Brazilian Federation of Banks (Febraban).

While President Jair Bolsonaro plays with authoritarian raptures, the Government has been losing market confidence with rising inflation. The Focus survey, by the Central Bank, with the projections of a hundred financial institutions, already points to an inflation of 7.27% this year, which should also impact the GDP. According to Focus, economic activity should advance 5.22% in 2021, below what was being projected earlier this month (5.30%).

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