Brazil’s economy expected to see blip of recovery in April, but recession likely to continue this fiscal

The Brazilian economy is expected to have expanded on month-on-month terms in April; however, it is likely to have severely shrunk on year-on-year terms. In April, the nation’s industrial production shrank at quite a slower rate, contracting 7.2 percent y/y from a contraction of 11.5 percent in March.

Meanwhile, on a year-on-year basis, growth of export was positive. This suggests that the economic activity growth of Brazil is likely to have come in at 4.4 percent on a year-on-year basis in April, the fastest pace in nine months, said Societe Generale in a research report.

On a month-on-month basis, the Brazilian economy is expected to have expanded 0.7 percent, suggesting that the economy might be on the path of recovery on sequential basis in the second quarter. If this happens, it will be the first positive move since the fourth quarter of 2014. However, the Brazilian economy is likely to continue contracting through 2016 on a trend basis.

On the demand side, the first quarter economic growth data surprised on the upside due to rise in government spending and a severe contraction in imports that led to rise in growth of net exports.

But the persistent fall in imports continue to show the weakness in the domestic economy, while the government continues to be under an obligation to reduce spending. The rapid pace in the decline of consumption bolsters the argument that the economy will continue to be in recession in 2016.

“We forecast the economy to contract by 4.2 percent this year followed by a further 0.8 percent in 2017,” noted Societe Generale.