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Brazil economy still flickering back to life in third-quarter, but no fireworks: poll

Kitco News

BRASILIA (Reuters) - Brazil’s economy likely expanded by 0.4% in the third quarter, according to a Reuters poll of economists, consolidating a steady, if unspectacular, pace of growth ahead of an anticipated upswing into the year end.

Falling inflation and interest rates in the July-September period helped support consumer spending and industrial output recovered too, but not enough to trigger a faster rate of growth on either a quarterly or annual basis, economists say.

That should come in the fourth quarter, when the effects of record-low interest rates and the boost to investor and business sentiment from Congress passing a landmark pension reform bill in October are likely to be felt more.

The median estimate from 19 economists for the July-September quarter is for a 0.4% rate of expansion compared with the second three months of the year, unchanged from Q2. Their estimates ranged from 0.2% to 1.0% growth.

The median estimate from 18 economists for year-on-year growth was 1.0%, also the same as the year-ago quarter, with a range of between 0.8% and 2.5%. The data will be released on Tuesday.

“We expect another gradual GDP expansion,” economists at Citi wrote in a note to clients, noting that domestic demand and investment should continue to support growth.

“At this point, we maintain our 0.7% and 1.8% growth forecasts for 2019 and 2020, but see risks of upgrading our estimate for this year, conditioned on (the) 3Q GDP release,” they added.

The government last week raised its 2020 growth forecast to 2.3% from 2.2%, and many private-sector economists also see the economy accelerating into next year.

Since the middle of this year, the central bank has slashed its benchmark Selic rate by 150 basis points to a new all-time low of 5.00%, and indicated clearly it will cut another 50 bps to 4.50% later in December.

Coupled with inflation at just 2.54%, well below the central bank’s target for this year of 4.25%, consumers are more willing to borrow and spend, and are seeing real incomes grow. But only gradually.

On the external side, however, Brazil’s trade surplus has been steadily deteriorating this year, as exports to Argentina have collapsed and continued uncertainty surrounding the U.S.-China trade wars has sapped global demand for Brazilian goods.

Brazil’s July-September trade surplus was just under $8 billion, the smallest quarterly surplus since the first quarter of 2016. All else being equal, this will trim GDP growth at the margins.

Reporting by Jamie McGeever in Brasilia; Additional reporting by Gabriel Burin in Buenos Aires; Editing by Matthew Lewis

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