Brazil's economy slowed in the third quarter amid heightened political turmoil, though increases in private consumption and investment suggested that a recovery from the country's longest recession on record is strengthening.
Gross domestic product expanded 0.1% in the July-September period from the previous three months in seasonally adjusted terms, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday. That was a far cry from the 1.3% and 0.7% growth registered in the first and second quarters, respectively, and fell short of the 0.2% median estimate in a survey of analysts by the local Agência Estado newswire.
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The period in question was marked by a resurgence in political uncertainty as President Michel Temer battled a series of corruption-related charges that have damaged his popularity and undermined his ability to pass needed overhauls.
Despite the turmoil, most of the economy was resilient. Noting that data from the first and second quarters were revised higher, London-based Capital Economics said in a note that the headline GDP figure "is not as bad as it looks."
Gross fixed-capital formation -- a key measure of investment -- expanded 1.6% in the third quarter from the second after 15 consecutive quarters of decline. Private consumption grew 1.2% for a second straight quarter. On the supply side of the economy, industrial output and services expanded by 0.8% and 0.6% from the second quarter, offsetting a 3% decline in the volatile agriculture sector.
"The underlying growth dynamics of the economy improved and broadened" in the third quarter, Goldman Sachs economist Alberto Ramos said in a note, raising his forecast for 2017 GDP growth to 1.1% from 0.9%. "The last three years were extraordinarily challenging, but the recession now seems to have moved into the rear-view mirror."
The question now is how long it will take for Brazil to dig out of a downturn that knocked a cumulative 7% off GDP in 2015 and 2016.
According to a weekly survey by the central bank, private economists expect GDP to increase 0.7% in 2017 and 2.6% next year.
But with a fiscal deficit of 9.25% of GDP, the government has little capacity to stimulate faster growth, let alone counter any unforeseen shocks the economy may face in the future.
At the same time, analysts say Mr. Temer's marquee overhaul, tackling Brazil's unsustainable social-security system, is unlikely to pass Congress before next year's general election.
That means Brazil's hopes of narrowing the government's deficit and restoring investor confidence may hinge on a market-friendly presidential candidate who has yet to emerge from the pack of mostly unpopular career politicians currently positioning themselves to run.
"The risk we face is not continuing to advance" with further overhauls, said Flávio Serrano, senior economist at Haitong investment bank in São Paulo. "Consumption is growing, investment is growing, so that's a sign that we may keep growing. But whether that actually happens will depend on further reforms."
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(END) Dow Jones Newswires
December 01, 2017 11:10 ET (16:10 GMT)