Brazil's economy enters recession in Q3 of 2021

Brazil's economy, the largest in Latin America, slid into recession in the third quarter of 2021 as agricultural production dropped, official data showed Thursday. The GDP declined 0.1 per cent for the second straight quarter, the government statistics agency IBGE said.

The second-quarter drop was revised to a larger 0.4 per cent from an initial estimate of 0.1 per cent compared to the previous three months. Brazil's second-quarter GDP slowdown ended the recovery that started late 2020 after the collapse caused by the Covid-19 pandemic. In comparison to the same period a year ago, the economy grew four per cent in the third quarter, said the IBGE.

Agricultural production fell 8 per cent, while manufacturing was flat and the services sector grew 1.1 per cent. Brazil's services industry was boosted by an improvement in the health situation in a country hard hit by the global pandemic.

After its immunisation campaign got off to a rocky start, the South American country has now managed to fully vaccinate 60 per cent of its population against coronavirus, although there are fears the emergence of the new Omicron variant — with three cases confirmed in Brazil — could at least partly undo progress.

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The third-quarter drop in farming production was partly a function of the end of the soybean harvest, which happens mainly in the first quarter, but also drops in coffee (-22.4 per cent), cotton (-17.5 per cent) and maize (-16 per cent) output compared to 2020. "The drop is attributable to the drought, water crisis, because there were crop losses and grain production declined," Alex Agostini of consulting firm Austin Rating said.

On top of the agriculture loss, adding to the growth slowdown was high inflation, rising interest rates and high unemployment, said Fabio Astrauskas, an economist with the firm Siegen.

Annual inflation hit a higher-than-expected 10.67 per cent in October, and unemployment was at 12.6 per cent for the July to September period.

The latest market expectation is for a growth of 4.78 per cent this year, according to a Central Bank survey, down from a 5.3 per cent forecast in July.

According to S&P Global Ratings, Brazil's economy recovered faster than expected following a 4.1 per cent contraction in 2020, and should achieve 4.8 per cent in 2021.

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But the medium-term growth outlook was "poor". "The combination of recent monetary tightening by the central bank, upcoming national elections, and investor concerns about the long-term fiscal policy will constrain consumption and investment in 2022, resulting in GDP growth below one per cent," it said.

S&P forecast an annual growth average of 1.7 per cent in the 2022-2024 period.

Far-right President Jair Bolsonaro is to seek re-election in 2022, but is trailing behind leftist leader Luiz Inacio Lula da Silva in the opinion polls.

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