Investment Slowdown To Temper Growth
BMI View: Brazil's weak Q114 GDP print reaffirms our view that the economy will continue to see tepid growth in the coming years, as the consumption story is dimming and investment has yet to pick up meaningfully. We have downgraded our headline real GDP growth forecasts for 2014 and 2015 to 1.8% and 2.2%, respectively, primarily due to a weakening outlook for fixed investment.
Weakening investment and private consumption growth in Brazil's Q114 GDP release highlight the continued challenges facing the economy, and inform our view that low growth is here to stay for the next several years. As such, we have downgraded our 2014 and 2015 headline real GDP growth forecasts to 1.8% and 2.2%, respectively, from 2.0% and 2.4%. This implies that growth will remain broadly in line with the headline print for Q114, which came in at 1.9% year-on-year (y-o-y), in the next few quarters.
We have long argued that a shift in Brazil's growth model away from consumption and towards investment was necessary in order to boost real GDP growth over the next five to 10 years (see 'Lower-Trend Growth Ahead', October 11 2012). The Q114 GDP print illustrates that while private consumption growth continues to moderate, fixed investment is stagnating following an uptick in 2013. This is weighing on headline growth and leaving Brazil stuck in the middle of a rebalancing process. Without substantial government reforms to simplify the tax regime and reduce the overall tax burden for businesses, as well as greater efforts to keep inflation expectations anchored and ensure a more stable regulatory environment, we see little that could provide a sustained boost to growth in the next few years.
|Economic Recovery Continues To Falter|
|Brazil - Real GDP Growth By Contribution, pp|