Brazil puts an end to historic recession

After two years of the biggest recession in its history, the Brazilian economy has gained momentum in the wake of economic reforms and the country has grown again. In the first quarter of 2017, Brazil's Gross Domestic Product (GDP) grew by 1% compared to the immediately previous quarter. The data was released by the Brazilian Institute of Geography and Statistics (IBGE) this Thursday (1 May).

President Michel Temer celebrated the upturn, stating that the recession is over and that the positive scenario is a result of measures taken by the federal government to control spending and heat up the economy.

The GDP is the sum of all wealth produced by the country. The positive result for the quarter was driven primarily by the expressive results in agriculture. From January to March, the sector grew 13.4% over the immediately previous quarter, mainly due to this year's record harvest.

In light of the news, finance Minister Henrique Meirelles assessed that Brazil has left the recession, and that the Brazilian economy is heading in the right direction.

"Today is a historic day. After two years, Brazil came out of the worst recession of the century. Throughout this period, millions of Brazilians lost their jobs, thousands of companies broke down and the State inched close to insolvency," the minister said in a statement, countering that “the strong growth of the economy at the beginning of this year is proof that this process has already reversed".

The good performance exceeded both the government economic team's and financial market analysts' expectations, in a demonstration of the improvement in economic indicators amid a scenario of falling interest rates and inflation. For this year, projections point to the first GDP growth since 2014, at a rate of 0.5%.

In this context, the approval of economic reforms is important to consolidate this positive economic environment and prevent a downturn of investments and growth in the country in the coming years. The spending ceiling law, pension reform and the modernisation of labour laws are expected to help boost confidence and job creation.

Investments

In the quarter, Gross Fixed Capital Formation (GFCF), the most common indicator of investments, stood at 15.6% of GDP in the quarter.

In relation to the immediately previous quarter, investments remained stable with a 1.6% drop, attenuating the negative results in year-to-date terms (6.2% drop in year-to-date for Q1 2017, compared to a 10.2% YTD decline for Q4 2016).

Consumption

With the fall in interest rates and inflation, household consumption continued to decline but has shown improvements, rising from a 0.5% decline in Q4 2016 to a 0.1% decline in Q1 2017.

Household consumption has also shown signs of recovery. In year-to-date terms, household expenses are still decreasing, but at a slower pace (from a 4.2% decrease in Q4 2016 to a 3.3% decrease last quarter).