Brazil’s Q4 Economic Growth Projected to Slow Amid Fiscal Concerns

Brazil’s economy is predicted to grow by 0.5% in Q4 2024, showing a slowdown due to reduced private consumption and investment. Analysts noted government spending and positive contributions from net exports. Forecasts for annual growth in 2024 have been notably revised upwards amid a strong employment market. However, fiscal concerns persist as the government remains focused on monetary tightening and maintaining its economic framework.

In the final quarter of 2024, Brazil’s economy is anticipated to exhibit slower growth due to decreases in private consumption and investment, according to a recent Reuters poll. The economy is projected to expand by 0.5% in the October-December period compared to the prior quarter, with a yearly growth rate estimated at 4.1%. This represents a decline from the previous quarter’s growth of 0.9%. J.P. Morgan analysts noted that the decline was driven by reduced private consumption and a notable dip in investment for the first time in a year.

Government consumption is expected to remain robust, along with slight contributions from net exports and inventory changes, aiding positive growth at year-end. However, reliance on federal spending has raised fiscal concerns, contributing to market sell-offs. Additionally, foreign direct investment increases were insufficient to surpass the current account deficit from last year, impeding broader economic growth.

From a supply standpoint, economist Bruno Imazumi from LCA 4intelligence forecasts modest gains across sectors—0.4% in services, 0.1% in industry, and 1.8% in agriculture. Notably, the services sector is projected to perform well, particularly in financial services, insurance, and supplementary pension services. The forthcoming gross domestic product data is expected to validate that economic growth concluded 2024 well above earlier market projections.

Analysts have revised their forecasts throughout the previous year in light of a strong job market and increased government spending, which mitigated the adverse impacts of high-interest rates. The January Reuters poll consensus estimates an annual growth of 3.4% for 2024, significantly higher than last year’s initial estimate of 1.6%. However, the government has revised its 2025 forecast down to 2.3% as the central bank pursues monetary tightening and inflation predictions are elevated. Despite the challenges, a government official affirmed the administration’s commitment to adhering to Brazil’s fiscal framework without implementing extraordinary measures to stimulate growth.

In summary, Brazil’s economic growth in the fourth quarter of 2024 has been forecasted to slow, primarily due to decreases in private consumption and investment. Although government spending and other factors may contribute positively, market concerns regarding fiscal health persist. Notably, forecasts for 2024 have been upgraded, yet caution remains as the government limits measures to enhance growth while committing to fiscal discipline.

Original Source: money.usnews.com