Brazilian economy grew in 1st quarter, returning to pre-pandemic level

Rio de Janeiro, Jun 1 (EFE).- The Brazilian economy grew by 1.2 percent during the first quarter this year after having suffered a 4.1 percent contraction during 2020, which was its worst showing in 25 years, but the advance returned it to its level at the end of 2019, before the impact of the Covid-19 pandemic.

The growth in the GDP of South America’s largest economy in the first three months of 2021, the figures for which were released by the government on Tuesday, exceeded the expectations of economists and was a surprise because the effects of the fall-off in consumption, the increase in unemployment and the new social distancing measures to halt the spread of the pandemic did not seem to be in evidence.

According to the figures released by the Brazilian Institute of Geography and Statistics (IBGE), after the historic 9.2 percent contraction in the second quarter of 2020, the time period showing the worst economic results during the pandemic, the Brazilian economy has now enjoyed three consecutive quarters of expansion: 7.8 percent during the third quarter of 2020, 3.2 percent during the fourth quarter and now 1.2 percent during the first quarter of 2021.

This performance, despite the deceleration in the rate of growth, enabled the Brazilian GDP to make it back to its 4Q 2019 level, that is to say the level before the pandemic hit, IBGE said.

“The growth in the first quarter puts us at the prepandemic level and shows that Brazil is going to end the year with noteworthy growth,” Brazilian Infrastructure Minister Tarcisio Freitas said.

The results bolster the projections of the government, as well as economists and organizations such as the Organization for Economic Cooperation and Development (OECD), that Brazil will end 2021 with about 4.0 percent growth and will overcome the losses suffered during the pandemic.

If these forecasts are borne out, Brazil will be able to resume its economic recovery after the historic recession it suffered in 2015 and 2016. After that, the Brazilian GDP had been growing slowly – by 1.3 percent in 2017, 1.8 percent in 2018 and 1.4 percent in 2019 – after significant retractions in 2015 (-3.5 percent) and 2016 (-3.3 percent).

The first quarter growth surprised economists, who initially had feared negative growth due to the eruption of a virulent second pandemic wave in February and new restrictive measures adopted by regional governments.

“Even with the second wave of the pandemic, the economy grew during the first months of the year such that, in contrast to 2020, there were not so many restrictions that impeded … economic activities,” said the IBGE’s coordinator for studies of the national economic balance, Rebeca Palis.

The first quarter results also surprised observers because they came amid record unemployment – 14.7 percent of the economically active population – and the suspension, at least during the first few months of the year, of the subsidies that the government distributed in 2020 to help alleviate the effects of the pandemic among the country’s poorest citizens.

Unemployment, the suspension of the aid and the increase in inflation all worked to ensure that families’ consumption, the main economic engine in the country of 210 million citizens, fell by 0.1 percent during the first quarter compared to the last three months of 2020 and by 1.7 percent compared with the first quarter of 2020.

While consumption among families, which is responsible for 60 percent of Brazil’s GDP calculated on demand, suffered a drop of 0.1 percent, the service sector, which is responsible for 70 percent of the country’s GDP calculated on supply, grew by just 0.4 percent.

Given the weakness in these two important indicators, Brazil’s GDP growth in 1Q ended up being spurred by agriculture and livestock, production of which jumped by 5.7 percent, by investment and by exports, which benefitted from the increase in world demand and in the prices for raw materials.

According to IBGE, gross fixed capital formation – that is, productive investment – rose by 17.0 percent during 1Q, its fastest growth rate since the second quarter of 2010.

Investment in Brazil in the first quarter was equivalent to 19.4 percent of GDP, above the 15.9 percent shown in the first three months of last year.

Despite the strong 1Q showing, economists warn that the growth in Brazil’s economy during the rest of 2021 will depend on the progress made in controlling the pandemic and on the acceleration of the vaccination campaign, which is still proceeding quite slowly.