Brazil's GDP Expanded in 2017, After Two Years of Contraction -- Update

03/01/18 09:48 AM EST
By Jeffrey T. Lewis 

SÃO PAULO -- Brazil's economy returned to growth in 2017 after two years of contraction, as investment spending, agriculture and industrial production helped pull the country out of its worst recession on record.

Gross domestic product expanded a seasonally adjusted 0.1% in the fourth quarter from the third, and grew 1.0% during 2017, Brazilian statistics agency IBGE said Thursday. GDP increased 2.1% in the fourth quarter of 2017 from the same period a year earlier.

The long-awaited recovery came after confidence returned to the country's businesses and consumers as price increases slowed, interest rates fell and the country's tumultuous political situation started to settle down.

"We can see clearly that the level of confidence of our clients is improving, that started in general last year," said Marcos Camara, chief executive of Paranapanema SA, a Brazilian maker of copper products including piping, wires and sheeting.

His company has seen an increase in demand from the automotive, electronics and refrigeration sectors, among others, and has hired about 200 new workers in the past six months while adding a third shift to Paranapanema's São Paulo plant to keep up with the surge, Mr. Camara said.

Investment, as measured by gross fixed-capital formation, increased 2.0% in the fourth quarter from the third, and grew 3.8% from a year earlier, IBGE said. Industrial activity rose 0.5% and 2.7% over the same periods.

Brazil's motor-vehicle industry has been both a driver and a beneficiary of the improving economy. Car production in Brazil jumped more than 25% in 2017 from 2016, as domestic sales rose and exports surged, according to Brazil's National Association of Motor Vehicle Makers, or Anfavea. The group expects an even better year in 2018, forecasting an increase in domestic car sales of 11.7% and a 5% improvement in exports.

Agriculture was another strong performer for Brazil's economy in 2017. Though the sector experienced no growth in the fourth quarter from the third, it expanded 6.1% in the fourth quarter from the same period a year earlier, IBGE said.

Brazil, the world's biggest producer and exporter of sugar and coffee and the second-biggest producer of soybeans after the U.S., grew several bumper crops last year and harvests this year are also expected to be good.

A sharp decline in the cost of borrowing in the past year and a half is helping spur investment and consumer spending, and will continue to boost growth this year, economists say. As inflation has slowed rapidly, the country's central bank has cut its benchmark interest rate to a record low of 6.75% from 14.25% in October 2016.

"The economy is gaining strength. We're going to start getting stronger growth in coming quarters, and it will be more generalized," said Flavio Serrano, an economist at Haitong Banco de Investimento do Brasil SA in São Paulo.

Brazil's GDP shrank 3.5% in 2015 and by the same percentage in 2016 amid political turmoil and a mammoth corruption investigation that sent dozens of business executives to jail on charges of bribery and related crimes. That investigation contributed to the impeachment and removal from office of former President Dilma Rousseff, in 2016, and almost led to the impeachment of her successor, Michel Temer, last year.

Brazil's Congress voted twice last year on whether to try Mr. Temer on corruption charges, but the president won both times and remains in office.

He has denied any wrongdoing.

His effort to overhaul the country's insolvent pension system, though, was a victim of his legal battles, and the government recently admitted it is unlikely to get the changes approved this year.

Without changes to a generous pension system that represents nearly half of total government expenses, Brazil's government faces growing fiscal deficits and constraints on spending. Brazil will hold presidential elections in October and it's far from clear at this point who the main candidates will be, adding to uncertainty that might deter some investment, according to Haitong's Mr. Serrano.

The outlook for Brazil's economy is nevertheless positive, executives say. Import and export activity is improving, and there are clear signs of growing interest in the country among foreign investors, said Antonio Dominguez, East Coast South America managing director for shipping company Maersk Line.

"Investors are coming back. It hasn't been like that for the past few years," he said. "Now we're getting a lot of companies asking us if we know a company that can help them with this or that. They want local references."

Paulo Trevisani contributed to this article.

Write to Jeffrey T. Lewis at


(END) Dow Jones Newswires

March 01, 2018 09:48 ET (14:48 GMT)

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