Brazil's Economy Expands at Fastest Pace in Six Quarters

Date : 04/12/2019 @ 00:28
Source : Dow Jones News

Brazil's Economy Expands at Fastest Pace in Six Quarters

By Jeffrey T. Lewis and Paulo Trevisani 

SÃO PAULO -- Brazil's economy grew at the fastest pace in six quarters in the three months through September, as record low interest rates spurred consumer spending and investment.

Brazil's gross domestic product expanded 0.6% in the third quarter from the previous quarter and 1.2% from the same period a year earlier, the Brazilian Institute of Geography and Statistics, or IBGE, said Tuesday.

In the second quarter, GDP expanded a revised 0.5% from the previous three-month period and 1.1% from a year earlier.

The faster growth comes as declining inflation has led to unprecedentedly low borrowing costs. The Brazilian central bank's benchmark lending rate is now 5%, compared with 14.25% three years ago, and the bank has signaled another half-point rate cut next week at its last policy meeting of 2019.

The rate cuts and a slow, but steady, decline in joblessness have boosted demand for consumer loans, especially for vehicles and mortgages. Household spending increased 0.8% in the latest quarter and 1.9% from a year earlier, the IBGE said Tuesday.

"It's all about lower interest rates and the improvement in employment," said Julio César Barros, an economist at Mongeral Aegon Investimentos in Rio de Janeiro.

The pro-business administration of President Jair Bolsonaro has allowed Brazilians to use part of a mandatory savings fund that workers can normally only withdraw when fired, retiring or buying their first home, providing consumers with more spending money.

Businesses are taking advantage of lower borrowing costs too, with lending to companies growing 9.9% in the same period. The advance of a pension overhaul bill through Congress over the course of the year has boosted confidence and encouraged an increase in investment, economists said.

Gross fixed-capital formation, a measure of investment outlays, grew 2% in the quarter and 2.9% from a year earlier.

The pension bill, which got final approval from the Senate in October, will save the insolvent pension system almost $200 billion over 10 years, which should help the government reduce its budget deficit and invest more in education, health care and other areas.

Economists forecast a meager 1% GDP growth this year, which would be about the same growth rate in the two previous years, following a major contraction in 2015 and 2016. The unemployment rate remains at a high 11.6% level.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com

 

(END) Dow Jones Newswires

December 03, 2019 08:13 ET (13:13 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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