Brazil falls into recession due to inflation and droughts

The Brazil economy It contracted slightly in the three months to September, government data showed, as rising inflation and a severe drought triggered a recession in Latin America’s largest economy.

The 0.1% drop in Brazil’s Gross Domestic Product (GDP) in the third quarter, reported by the official statistics agency IBGE, was below the median of zero growth forecasts in a Reuters poll.

Brazil’s economic rebound after the worst phase of the Covid-19 pandemic It stalled as inflation soared into double digits, forcing the central bank to increase borrowing costs aggressively.

Headwinds for the economy have weighed on the popularity of the far-right president Jair Bolsonaro, who is preparing to seek re-election in 2022.

The revised data showed a 0.4% drop in the second quarter, worse than the 0.1% drop previously reported. Two consecutive quarters of contraction meet the definition of a recession.

This year’s unusually dry weather has also affected key Brazilian crops such as corn and coffee. The disappearance of reserves in hydroelectric dams raised electricity costs, adding to the shocks of high prices.

Agricultural production fell 8.0% in the third quarter, while industrial production was flat and services advanced 1.1 percent.

With tightening financial conditions and inflation at multi-year highs, the services sector is likely to weaken, “William Jackson, chief emerging markets economist at Capital Economics, told clients in a note.

The weak economic data could lead the central bank to keep pace with interest rate hikes at its policy meeting next week, avoiding a larger increase than some experts had predicted, Jackson said.

Some economists are warning of a deeper recession next year.

The market outlook for 2022 economic growth has fallen from 2.3% in June to less than 0.6% in the latest survey of central bank economists, released Monday.

Brazil’s economy ministry dismissed that consensus in a statement Thursday, reaffirming its forecast for GDP growth above 2% next year and pointing to recent job creation data as evidence of a resilient recovery.

Brazil’s unemployment rate fell to 12.6% in the third quarter from 14.2% in the previous quarter, data showed this week, hitting the lowest point since the start of the pandemic.

Compared to the third quarter of 2020, Brazil’s economy grew 4.0%, IBGE data showed, below an average growth forecast of 4.2 percent.