GDP rebounds in the third quarter

GDP reading: GDP rebounded 3.9% on a seasonally adjusted quarter on quarter basis in the third quarter, contrasting the 1.7% contraction seen in the second quarter and marking the best result since Q4 2020. As a result, the economy emerged from recession following three straight quarterly contractions, spurred by falling inflation and interest rates plus the government’s liberalizing reforms. On an annual basis, GDP shrank 2.1% in Q3, following the previous period's 1.7% decrease.

Broad-based upturn: The upturn reflected improvements in private consumption, public spending, fixed investment and exports. Household spending bounced back 4.6% seasonally-adjusted quarter-on-quarter in the third quarter, which marked the best reading since Q4 2021 (Q2: -3.4% s.a. qoq). Government spending grew 0.7% in Q3 (Q2: -1.1% s.a. qoq). Fixed investment rose 12.0% in Q3, contrasting the 7.5% decrease logged in the previous quarter. Exports of goods and services increased 3.2% on a seasonally adjusted quarterly basis in the third quarter, which contrasted the second quarter's 2.5% contraction. Finally, imports of goods and services were up 9.1% in Q3 (Q2: -4.6% s.a. qoq).

Strong GDP growth in 2025: Our Consensus is for sequential GDP growth to ease from its Q3 level ahead but to remain well above the Latin American average, as the economy continues to reap the benefits of the government’s deep reform drive, lower inflation and improved credit conditions.

Panelist insight: Itaú Unibanco analysts said: “A stronger-than-expected sequential recovery in 3Q24 poses an upside risk to our 2024 GDP forecast of -3.0%. We recently revised our GDP growth forecast for 2025 to 4.2% (from 4.0%), mainly due to the expected recovery in real wages and a better investment environment. The faster than anticipated exit from the recession takes place as fiscal surpluses have persisted, inflation has surprised to the downside, and government approval remains elevated.” Goldman Sachs’ Sergio Armella said: “We expect the recovery (and macro adjustment) to continue in the quarters ahead and forecast a 3.5% expansion in 2025—after a 2.6% contraction in 2024 (revised up from -2.8% forecast before)—supported by positive real wage growth, increasing credit to the private sector, and improving business and consumer sentiment.”

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