Market sees Brazil ‘technical recession’ at end of year after IBC-Br below expectations

São Paulo – Financial market forecast regarding performance GDP it fell in the third and fourth quarters after disappointing recent data on economic activity. As it was announced this Friday, the 20th century IBC-Br (index of economic activity, increased by Central bank) fell by 0.77% in August, which was more than the 0.6% drop expected by analysts. In addition, there were also negative surprises with the results published by IBGE this week for service sector and expanded retail.

Thus, according to the research of a Broadcasting of projections made with 30 financial institutions, the average forecast for third-quarter GDP went from stable (0.0%) a month ago to a 0.2% drop now. For fourth-quarter GDP, the median also declined, from flat (0.0%) to a 0.1% drop.

If these predictions are confirmed, the country will join the technical decline, because there will be a decline in economic activity for two quarters in a row. The last time this happened was at the end of the second quarter of 2020.

Following the data, G5 Partners cut its third-quarter GDP forecast from a 0.1% increase to a 0.1% decline. Although a slowdown was already expected during this period, economist Pedro Crispim emphasizes that the results were lower than expected, mainly in the services and retail sectors. “There is also a significant dispersion of the positive effect of the agricultural sector, which seasonally weakens in the second half of the year and should moderate activity in the future,” he adds.

The IBC-Br data released by BC was worse than expected photo: Dida Sampaio/Estadão

Like Crispim, economist Gabriel Kuta of Santander Brasil also points to a 0.9% decline in services in August. “Looking at the monthly data, it was a big surprise for us. The rest came smartly,” says Kuta, who forecasts a 0.3% drop in GDP in the third quarter.

The bank’s scenario also assumes a second contraction in GDP in the fourth quarter, this time by 0.5%, leading to an annual growth of 2.5% in economic activity in 2023. Kuta believes that the estimates take into account the range of information available so far, but series revisions by the IBGE are common when the third quarter data is published, which can lead to changes in the institution’s forecasts.

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As for the balance of risks in the GDP forecast for 2023, the economist notes that there are both upward and downward vectors. “On the more negative side, we have seen greater resilience in financial conditions. We saw an improvement from the second to the third quarter, with the beginning of monetary policy easing, but the last few months have seen a new tightening, even by more external indicators, with uncertainty around monetary policy abroad,” he assesses.

On the other hand, on the more positive side, he notes that the unemployment rate remains close to recent lows, in addition to the potential positive impact of the Desenrola program.

Crispim, of G5, also estimates that the Desenrola program tends to have a positive impact on GDP in the last quarter, for which it expects a 0.2% increase in margins. “The process of disinflation and the corresponding increase in family income also tends to help; we should have a little more consumption at the end of the year,” the economist adds. The House forecasts 3.0% GDP growth in 2023.

At the top end of the estimates, Pezco economist Helcio Takeda predicts even higher GDP growth for the year, at 3.3%. ​​​​​​While weaker activity data in August led the house to cut its estimate for the third quarter from 0.1% to 0.0%, Takeda analyzes that growth is above 3% for the year ” still seems reasonable.”

“In our calculations, the burden of GDP in the second quarter was 3.08% year-on-year, so zero or slightly negative growth in the third quarter does not change our scenario, because the trend is towards recovery in the last three months,” explains.

Takeda forecasts a 0.1% increase in GDP profitability in the final quarter and cites a hot labor market and rising household incomes as the main positive vectors for activity in the final months of the year.

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