Schroders Quickview: Brazil GDP disappoints, and outlook is bleak

Brazilian growth continues to disappoint, and in many ways out-did itself in the third quarter release, missing not just expectations but also revising down growth for the first half of the year.

1 December 2015

Craig Botham

Craig Botham

Emerging Markets Economist

Atrocious imports offset anaemic exports

In year-on-year terms, Brazilian GDP contracted 4.5% in the third quarter, reflecting broad-based weakness across all sources of expenditure and most industrial sectors.

Household consumption, fixed investment and government spending all contracted compared to the previous year, with the pace of that contraction also accelerating.

The one bright side to this demand weakness was that although exports were anaemic, imports were atrocious, providing a positive net exports contribution.

A look across sectors shows only five of 12 providing positive growth contributions, and in most cases even these are close to zero.

It is also difficult to see the mining sector managing positive growth for much longer given the outlook for iron ore.

Can things improve?

The political situation has continued to deteriorate in Brazil, such that policymaker focus now is almost entirely on the fallout from the Petrobras corruption scandal.

The latest arrests have raised the prospect of a government shutdown, and while we might cynically remark that this would at least prevent a further deterioration of the fiscal deficit, it does little to inspire confidence.

Hopes that the rapidly worsening economic situation would force politicians to act have been scotched, as opposition parties seem happy to stoke the fires of discontent against the government and push for President Rousseff’s impeachment.

Without reform efforts or indeed anything resembling coherent policy, we have been forced to downgrade; 2016 is set to be another very disappointing, and negative, year for growth.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.