Brazil's GDP Stalls, and Economy Shows Signs of Prolonged Crisis

Decrease of -0.1% in the 2nd quarter frustrates estimates; recovery is strangled by water and political crises

São Paulo and Rio de Janeiro

Brazil's second-quarter GDP, announced by the IBGE, shows an economy that is not growing. Its recovery has been undermined by the water crisis (which affects production costs) and politics (which undermines investor confidence).

The decline of -0.1% frustrated the market and government expectations that the country would move forward compared to before the health crisis. Minister Paulo Guedes said the economy "walked sideways" in what was "the most tragic period of the pandemic."

Brazil was expected to grow around 5% this year only because 2020 was a bad year. This present and future dynamic can be seen in the unequal performance between, on the one hand, industry and agriculture and, on the other, services.

The first two have retreated, but are still above the 2019 level, and the last, undermined by the pandemic, advanced without returning to pre-Covid levels.

With unemployment, expensive energy, fiscal risk, and turmoil in the Planalto, the expectation for 2022 is less than 2%.

Some people are already talking about stagflation – high inflation without economic growth.

Translated by Kiratiana Freelon

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