BofA, Goldman Boost Brazil Growth Bets After Solid First Quarter

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Analysts from Goldman Sachs Group Inc. and Bank of America Corp. see Brazil’s economy growing faster this year after a better-than-expected first quarter that was driven by investment and booming agriculture.

Goldman increased its growth forecast for Latin America’s largest economy to 5.5% from 4.6%, while BofA raised its projections to 5.2% from 3.4% after Tuesday’s data release by the national statistics agency.

“Concerns about the slowdown in first quarter activity were exaggerated,” David Beker, BofA’s Chief Brazil economist, said in an interview. “We expect the economy to recover visibly in coming quarters,” Goldman’s Alberto Ramos wrote in a note.

Brazil’s gross domestic product increased 1.2% in the first quarter from the previous three-month period, more than the 0.9% median estimate from analysts in a Bloomberg survey. From a year prior, the economy grew 1.0%, the statistics agency reported.​

The recovery took place even if challenged by fresh restrictions on commerce and movement meant to help combat new, more contagious variants of the virus. Cash handouts for the most vulnerable Brazilians, the centerpiece of President Jair Bolsonaro’s stimulus package, were also paused during the quarter. Still, recent indicators such as retail and industrial output have topped forecasts.

What Bloomberg Economics Says

The Brazilian economy showed surprising resilience in the first quarter, maintaining a strong pace despite the hiatus in emergency cash handouts, a first rate hike and the surge in Covid-19 cases. The rise in the investment and savings-to-GDP ratios bode well for growth in both the near and medium-term. The pandemic remains a key factor for the near-term outlook, as does the policy uncertainty -- which will weigh on the currency, interest rates and confidence.

--Adriana Dupita, Latin America Economist

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Agriculture and investments drove growth, up 5.7% and 4.6%, respectively, during the quarter. Meanwhile, family consumption slipped 0.1%.

Swap rates on the contract due in January 2022, which indicate investor expectations for monetary policy, rose 5 basis points to 5.11% in morning trading. The real strengthened 1.1% to 5.1603 per dollar, the best performance by a major currency on Tuesday.

Benign Outlook

Policy makers and private sector analysts are becoming increasingly confident that growth can surpass 4% this year. Economy Minister Paulo Guedes echoed private estimates, saying Tuesday’s release signaled strong expansion for the rest of the year.

But those hopes are largely pinned on bets immunization campaigns will gain momentum in the second half, even as the government struggles in sourcing shots and inputs. Brazil continues to suffer one of the world’s worst coronavirus outbreaks, registering 860 deaths from the virus on Monday.

The central bank also began increasing its interest rate in March as higher commodity costs and lagged effects from government spending fueled consumer prices. Annual inflation stood at 7.3% in mid-May, above the bank’s 2021 target of 3.75%.

The recovery is likely to continue gaining momentum despite the worsening of the pandemic late in the quarter, with factors including fiscal and monetary support helping growth, according to Andres Abadia, an economist at Pantheon Macroeconomics.

“The outlook in the near term is benign,” he wrote in a research note.

©2021 Bloomberg L.P.