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Q2 GDP has positive surprises with services and industry, say analysts

The 1.2% rise in Gross Domestic Product (GDP ) in Brazil in the second quarter surpassed the median of market projections with positive surprises, and should result in revisions of growth expectations for the year, say experts to the CNN Brasil Business .

The quarterly growth was the fourth in a row, with the Brazilian economy accumulating a 2.5% increase in the 1st half of 2022 and at a level 3% above the pre-pandemic .

Even with the expectation of a more challenging second half, with deceleration, the numbers for the first six months of the year exceeded expectations, which should help in an also higher annual growth.

services and industry

The second quarter result surprised positively, coming a little better than expected by the market, according to the chief economist at MB Associados and a specialist CNN Sergio Vale.

Vale highlights “good numbers” of investments with Gross Fixed Capital Formation rising by 4.8%, and household consumption, both above expectations.

For him, “the central point is still a resumption of services, which has been the flagship of the post-pandemic resumption”.

He further states that the commodities has also had a positive performance, with the regions with more presence in the agribusiness registering the highest levels of growth, especially in income, which also contributes to greater activity.

According to the economist, the most positive surprises were in investment formation and industry , which grew 2.2%. However, there is no way to know if the performance of the two segments will be sustained in the future.

“The industry has been very fragile for a long time, it is still at the levels of 10 years ago, and investment has gone up, especially on account of agriculture and construction”, he observes.

Juliana Trece, a researcher at FGV-Ibre, says that part of the better-than-expected performance is linked to another surprise, in the labor market with unemployment falling more than expected and thereby contributing to greater growth.

She highlights that all major economic activities contributed to the rise, especially services with an increase of 1.3%, and with 11 of the 12 registering growth and the public administration having a small decrease.

“Practically all activities have growth is not something very common. It was a positive across the board, not just focused on services or industry,” he says.

Trece assesses that the growth of the economy is directly linked to the continuity of the effects of a normalization of the service sector, which is recovering from the pandemic.

In the separation by segments, it was the other services, such as bars and hotels, that had the biggest increase, indicating a release of the repressed demand during the pandemic.

She considers, however, that much of this normalization “is coming to an end”. Even so, the sector benefited from other factors, such as the fiscal stimulus with the anticipation of the withdrawal of the FGTS and the 13th salary, helping with consumption.

In the case of the industry, she attributes the growth to two segments, that of construction which according to the economist benefits from a stronger labor market, and electricity and gas, water, sewage, waste management activities, helped by the reduction in the use of thermoelectric plants, reducing the costs of generating energy .

next quarters

Trece says that for the coming quarters, the expectation is for a weaker performance, but activity may decelerate less than expected after a stronger first half.

“It is difficult to maintain this rhythm because the high interest rate has negative effects on economic activity, and interest rates have a lag, which should be felt now in the second half of the year”, he explains.

The impact of Selic rate high should affect especially the job market and consumption, but she says that there is still no way to know if the numbers will come negative or just lower.

In addition, there is uncertainty about the election period which traditionally generates caution in the economy, reducing hiring and investments.

The economist considers that “there may be a surprise of a slower-than-expected deceleration”, especially with one-off positive effects of the reduction in the tax rate. ICMS on fuel, energy and telecommunications and the R$ 200 increase in Auxílio Brasil.

“These are not structural things, they are punctual, but they can end up helping. O Brazil aid it should help mainly in terms of consumption, even though it has already been strong in the first half of the year, especially non-durable goods, such as food and medicine”, he says.

Vale says there may still be some residual degree of normalization in the service sector in the second half of the year, but weaker, with most having taken place in the first half of the year.

“Now it starts to have the effects of interest, inflation and a more difficult international scenario, the post-pandemic effect comes out, which has reached its peak”, he evaluates.

For him, it is possible that the greater Auxílio Brasil will help the economy, especially the poorest population, but in a small volume, without changing a trend of lower growth.

The economist says that the Brazilian GDP has been improving quarter by quarter, but that the current one may have been a peak, with a tendency towards lower values.

Even so, he believes that the figure leaves room for revisions to projections for both 2022 and 2023, even if the next year is weaker due to the interest rate scenario, a post-election adjustment and a negative international environment.

Ibre’s Trece says the second quarter number “should lead to revisions to projections”. In the case of Ibre, which expected growth of 1.7% in 2022, she believes that an upward revision will occur.

After the release of the result, Ativa Investimentos announced a revision for 2022 GDP growth from 1% to 2%, citing “more positive data from the first half”.

In the same vein, the bank Goldman Sachs raised its forecast from 2.2% to 2.9%, with a forecast of a rise close to 1% in 2023. Genial Investimentos also informed a review, now expecting a GDP growth of around 2 .8% to 2.9%.

Source: CNN Brasil

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