GDP growth slows in Q4 but remains upbeat

GDP reading: GDP growth slowed to 1.4% on a seasonally adjusted quarter on quarter basis in the fourth quarter, from 4.3% in the third quarter. A slowdown was always going to happen given the unsustainably fast Q3 growth figure, but Q4’s reading was still elevated by historical standards. Lower inflation and interest rates plus liberalizing reforms boosted the economy. On an annual basis, economic activity rebounded 2.1% in Q4, contrasting the previous period's 2.0% fall and marking the best result since Q3 2022.

Drivers: Private consumption increased 3.2% quarter on quarter in Q4, which was below the third quarter's 4.4% expansion. Public consumption growth moderated to 0.8% in Q4 (Q3: +1.7% s.a. qoq). Meanwhile, fixed investment growth accelerated to 11.3% in Q4, following the 10.3% expansion recorded in the previous quarter. On the external front, exports of goods and services growth improved to 7.7% in Q4 (Q3: +3.5% s.a. qoq). In addition, imports of goods and services growth sped up to 12.9% in Q4 (Q3: +9.7% s.a. qoq).

Panelist insight: Goldman Sachs’ Sergio Armella commented on past performance and the outlook: “A significant fiscal adjustment, tight capital, financial and FX controls, an upward adjustment of lagging regulated prices, and a spike in inflation, were all drags on growth in 2024, particularly during the first half of the year. Were it not for a much better harvest relative to 2023, the adjustment this year would have likely been deeper. That said, the economy had a strong recovery in the second half of the year, and we expect the positive growth momentum to continue in the quarters ahead.” Itaú Unibanco analysts said: “We forecast 2025 GDP growth at 4.5%, with upside risks due to a high carryover and the expected improvement of demand-side components. On the demand side, the recovery in real wages and lower borrowing rates are likely to support private consumption.”

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