Economy

Brazil shows record growth in Q3 but fails to return to pre-pandemic levels

The country's economy grew 7.7% over the previous quarter, but is still 3.9% below the same period last year

Interior of an aluminum factory in the state of São Paulo, Brazil.
Interior of an aluminum factory in the state of São Paulo. Brazil's industrial sector recorded 14% growth in the third quarter. Photo: REUTERS/Paulo Whitaker/ File Photo
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  • Since the beginning of the statistical series, in 1996, it was the country’s best performance. It came after a contraction of 1.5% in the first quarter and a drop of 9.6% in the second, when the isolation measures against the coronavirus paralyzed many of the country’s activities;
  • However, the pandemic’s consequences are still apparent when looking at the 3.9% drop in GDP in the third quarter compared to the same period in 2019.

Industry, services, and household spending propelled Brazil’s economy to record growth in the third quarter of 2020. However, this result is not enough to take the country back to pre-pandemic levels.

Brazil’s Gross Domestic Product (GDP) grew 7.7% from July to September compared to the previous three months, according to data released this Thursday by the Brazilian Institute of Geography and Statistics (IBGE).

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Since the beginning of the statistical series, in 1996, it was the country’s best performance. It came after a contraction of 1.5% in the first quarter and a drop of 9.6% in the second, when the isolation measures against the coronavirus paralyzed many of the country’s activities.

The economy’s pace started to gain momentum at the end of the second quarter, after reaching its rock bottom in April, as companies reopened after stricter isolation measures.

However, the pandemic’s consequences are still apparent when looking at the 3.9% drop in GDP in the third quarter compared to the same period in 2019. The country’s economy is at the same level as 2017, with an accumulated loss of 5% from January to September compared to the same period in 2019.

READ ALSO: Brazil’s jobless rate rises and Chile’s unemployment eases to 11.6%

The rebound shows that the economic hit from the COVID-19 pandemic has been lighter in Brazil than in other major Latin American economies. But that is largely due to the government’s income transfers to millions of low-income families unemployed and informal workers, which are due to expire at the end of this year.

“If you look at household consumption, it is impossible to separate the recovery from the emergency aid. Impossible. Given that the program was reduced in the fourth quarter … that will be reflected in the Q4 numbers,” said Jose Francisco Goncalves, chief economist at Banco Fator. “Next year, there will be no program, and the government, economists, and media are underestimating the impact this will have on growth,” he said.

The Economy Ministry disagreed entirely. In a statement, it said the “strong recovery” shown in the latest figures means the economy can continue growing in the first half of 2021 without emergency government support.

“It is important to stress that the resumption of activity and employment in recent months will offset the reduction in aid,” it said.

Industry and household consumption boosted quarterly results

In the third quarter, the highlight on the production side was the 14.8% increase in industry, notably the 23.7% increase in the transformation industry.

The service sector – which has the greatest weight in the country’s GDP, was most affected by social isolation and still has the greatest difficulties in returning to the pre-pandemic level – also performed strongly, with an expansion of 6.3%.

“But (services) did not recover the level of the first quarter, because there was a drop in both supply and demand. Even though operating restrictions were removed, people are still afraid to consume,” explained the coordinator of National Accounts at IBGE, Rebeca Palis.

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On the other hand, agriculture recorded a retraction of 0.5% in the third quarter over the previous three months, which was due, according to IBGE, to a crop adjustment. The sector still shows growth in the year, of 2.4%, against falls of 5.1% in industry and 5.3% in services.

On the expenditure side, household consumption increased by 7.6% over the second quarter, while government consumption increased by 3.5%.

Gross Fixed Capital Formation (GFCF), an investment measure, grew 11.0% in the period, a performance, however, related to the shallow comparison basis, since in the second quarter the fall was 16.5%.

“In the year, the fall (of GFCF) is 5.5%. And the country still has an investment in imported equipment, and, as the dollar is high, (the depreciation of the real) pushes (this indicator) down,” added Palis.

Concerning the external sector, exports of goods and services fell by 2.1%, while imports fell by 9.6% compared to the second quarter of 2020, something also influenced by the exchange rate.

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