GDP falls at a more moderate pace in Q2

High inflation and tight fiscal stance hit activity: GDP fell at a softer pace in the second quarter, with GDP decreasing 1.7% on an annual basis (Q1: -5.2% year on year). Triple-digit inflation and hefty fiscal consolidation were behind the fall, notwithstanding the rebound in the agricultural sector and higher energy output. On a seasonally-adjusted quarter-on-quarter basis, GDP dropped 1.7% in Q2, following the previous period's 2.2% fall.

Domestic demand drags on GDP: Household spending contracted 9.8% in Q2, marking the steepest decline since Q3 2020 (Q1: -6.6% yoy). Public consumption, meanwhile, dropped at the sharpest pace since Q2 2020, contracting 6.0% (Q1: -4.3% yoy). Meanwhile, fixed investment contracted 29.4% in Q2, marking the worst reading since Q2 2020 (Q1: -23.8% yoy). On the external front, exports of goods and services increased 31.4% on an annual basis in the second quarter, which was above the first quarter's 26.4% expansion. Conversely, imports of goods and services slid at a quicker rate of 22.5% in Q2 (Q1: -15.5% yoy).

Partial recovery ahead: Our Consensus is for the economy to contract at a sharper year-on-year pace in Q3 due to a higher base of comparison, though underlying momentum should improve—as reflected by panelists’ forecasts for a GDP rebound in quarter-on-quarter terms.

Panelist insight: On the outlook, Itaú Unibanco analysts said: “We recently revised our 2024 GDP growth forecast to -4.0% (from -3.5%), mainly due to the negative statistical carryover from 2Q24 anticipated in the monthly GDP proxy. We expect economic activity to gradually improve from 3Q24, as several leading indicators have shown green shoots, such as personal loans, VAT collection, construction, manufacturing and auto sales.” In a similar vein, Goldman Sachs’ Sergio Armella said: “Positive real wage growth as inflation moderates should provide some support for consumption and activity in the second half of 2024. High frequency activity indicators already showed a significant increase in industrial and construction activity in July. All in all, we left our real GDP growth forecast for 2024 unchanged at -4.1% and moved up our 2025 forecast to 2.2% from 1.7% before.”

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