Brazil Wriggles Out of Recession, Foresees Strong Economic Growth

Slowing inflation, record low interest rates, and increasing demand for oil and copper have propped up consumer spending, allowing the stock market to hit new heights.

Brazil economic growth

Brazil has posted three straight months of economic growth, confirming that the country is finally moving out of recession.

The central bank’s economic activity index has risen 0.49% since October, the longest period of growth since the economic turmoil started in 2014.

Latin America’s largest economy grew about 1% in 2017, according to Reuters’ estimation. Slowing inflation, record-low interest rates, and the increasing demand for oil and copper have propped up consumer spending, allowing the stock market to hit new heights.

Economists forecast 2.8% growth in 2018, according to a weekly central bank survey, which would be the fastest since 2013, while the International Monetary Fund (IMF) has forecast 1.5%.

Analysts attribute the interest rate cuts to the increase in domestic consumption. Rebounding oil prices are also helping to boost confidence.

There has been a sharp uptick in car exports as well. More than 60% of the German-branded cars sold in Colombia are made in Brazil, according to The Financial Times.

Brazil is now an exporter of cars to Argentina and Colombia, the region’s second- and third-largest economies.

Still, analysts say the positive outlook hinges on policymakers’ ability to plug a growing budget deficit and implement market-friendly reforms as the nation is scheduled to go to presidential elections this year.

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“Insufficient progress towards fiscal consolidation could potentially jeopardize the recently achieved gains in macroeconomic performance and asset prices,” Goldman Sachs economist Alberto Ramos wrote in a report.

Still, investors are likely to hold off on their plans during this election year until policy changes become clear.

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