Brazil’s economy grows 1% in Q1

• Brazil’s economy grew by 1% in the first quarter of this year.
• The expansion was led by a one percent increase in the services sector.
• President Jair Bolsonaro is up for reelection in October

Brazil’s economy grew by 1% in the first quarter of this year, according to the government, yet rising inflation continues to affect the Latin American powerhouse.

According to the national statistics institute, IBGE, the expansion was led by a one percent increase in the services sector, which compensated for a 0.9 percent contraction in the agricultural sector.

It also changed its 2021 economic growth forecasts, removing mention of a recession in the second and third quarters of the year.

Read More: US economy slowed slightly more in Q1: govt

According to revised estimates, Latin America’s largest economy grew by 0.1 percent in the third quarter, but the full-year growth rate remained unchanged at 4.6 percent.

It follows a 3.9 percent drop in coronavirus pandemic-ravaged 2020.

– Election year uncertainty –

The increase will be welcomed by President Jair Bolsonaro, who is up for reelection in October and is battling views that he has underperformed on the economy.

In the polls, the far-right incumbent lags leftist ex-President Luiz Inacio Lula da Silva (2003-2010). In a poll issued last week, the Datafolha institute gave Lula 48 percent of the vote against Bolsonaro’s 27 percent.

The same poll found that 54% of Brazilians say the country’s economic situation will have a big impact on their vote.

Brazilians are suffering as a result of rising costs and declining purchasing power.

Annual inflation currently stands at 12.13 percent, far above the central bank’s target of 3.5 percent.

The bank has responded with one of the world’s most aggressive monetary tightening cycles, hiking the benchmark interest rate 10 straight times.

The benchmark rate is now at a five-year high of 12.75 percent, stifling economic development.

Mirella Hirakawa, the senior economist at investment fund AZ Quest, said consumption — up 0.75 percent for the January-March period — was helping boost growth, even as investment sank by a worrying 3.5 percent.

“Household spending has risen strongly for three straight quarters, thanks to the reopening of the economy (from the pandemic) and government stimulus measures,” she told.

The latter notably includes a new social program launched by Bolsonaro called Auxilio Brasil, granting payments of at least 400 reais (around $85) a month to some 20 million families.

Read More: Brazil unemployment falls to seven-year low

The move is popular with beneficiaries, but opposition parties have accused the president of economic populism in an election year.

Meanwhile, economists worry that the initiative, as well as the trend toward more similar expenditure in the run-up to the elections, will simply fuel the inflationary fire.

According to analysts polled by business daily Valor, Brazil’s GDP will rise by 1.4 percent this year.

In May, the central bank predicted 0.7 percent growth.

“To sum things up: the country has improved, but high inflation will prevent that growth from continuing through the year,” economics columnist Miriam Leitao wrote in the newspaper O Globo.

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