Economic growth smashes expectations in Q2

GDP reading: The Brazilian economy stepped on the gas in the second quarter of 2024, with GDP growth accelerating to 1.4% on a seasonally adjusted quarter-on-quarter basis, improving from an upwardly revised 1.0% in the first quarter and marking the best result since Q4 2020. On an annual basis, economic growth accelerated to 3.3% in Q2, following the previous quarter's 2.5% growth and marking the best result in a year. Both the quarterly and annual upturns surprised markets on the upside.

Drivers: The quarterly acceleration was due to government spending speeding up to a 1.3% expansion in Q2 (Q1: +0.1% s.a. qoq). Less positively, private consumption growth waned to 1.3% in Q2 compared to a 2.5% expansion in Q1. Similarly, fixed investment growth slowed to 2.1% in Q2, following 3.8% logged in the prior quarter. On the external front, exports of goods and services increased 1.4% in the second quarter, which was above the first quarter's 0.4% expansion. Meanwhile, imports of goods and services growth sped up to 7.6% in Q2 (Q1: +4.5% s.a. qoq), marking the strongest reading since Q1 2021.

GDP outlook: Our panelists anticipate sequential GDP growth to decelerate to roughly a third from H1 in H2. Private spending should remain supportive of growth; our Consensus is for average inflation to hover around H1 levels in H2, and for the unemployment rate to fall. Additional extreme weather events, as well as election-related uncertainty surrounding the municipal elections in October, pose downside risks.

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