August 27, 2019 / 11:48 AM / 4 months ago

Brazil narrowly skirted recession in second quarter: Reuters poll

BRASILIA (Reuters) - Brazil’s economy likely expanded by 0.2% in the second quarter, according to a Reuters poll of economists, a sluggish pace of growth but enough to mean Latin America’s largest economy avoided slipping back into recession.

That is the median estimate of 28 economists for the April-June period compared with the first three months of the year. Their estimates ranged from -0.3% to +0.5%.

The median estimate from 27 economists for year-on-year growth was 0.7%, with a range of between 0.1% and 1.2%. The data will be released on Thursday.

Both would indicate that the economy is gradually recovering from earlier this year and that the worst may be behind it, following the first contraction since 2016 in the January-March quarter and tepid annual expansion rate of just 0.5%.

“While we forecast that the country will avoid a recession, we acknowledge it is a close call,” JP Morgan economists wrote in a client note published on Friday. “Recent data seem to point to an economic recovery, though still below our expectation.”

If these estimates are accurate they will be further evidence that Brazil’s economy is performing well below potential. Unemployment is stubbornly high around 12%, while business investment, the service sector and industrial production all remain weak.

Yet President Jair Bolsonaro’s government will likely breathe a collective sigh of relief if recession is avoided - however narrowly - and argue that the economy has troughed and is poised for consistently stronger growth.

Uncertainty surrounding pension reform that hung over Brazil’s economy and markets for the first half of the year has largely been lifted, now that the lower house of Congress has passed a landmark bill that should save the public purse almost 1 trillion reais ($241 billion) over the next decade.

There is a renewed sense of optimism among economists and Economy Ministry sources that Brazil’s domestic political conditions are conducive to a more buoyant economy. In addition, the central bank cut interest rates to a record low 6.00% last month, and with growth and inflation so weak, is widely expected to ease again.

But the environment overseas - the U.S.-China trade war, U.S. recession fears, a strong dollar, falling stock markets - is deteriorating rapidly. Darkening global conditions are likely to influence Brazil’s growth prospects more than brightening domestic conditions.

As the minutes of last month’s central bank policy meeting showed, policymakers are fairly lukewarm on the economy. Recent activity suggests a “possible” resumption of the recovery, which should continue at only a “gradual pace.”

That’s a view shared by most observers: The central bank, government, International Monetary Fund and private sector economists all share a view that Brazil’s economic growth this year will be 0.8%, down from 1.1% in 2017 and 2018.

Reporting by Jamie McGeever; Additional reporting by Gabriel Burin in Buenos Aires; Editing by Steve Orlofsky

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