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Brazil’s economy grew more than expected in the second quarter on the back of increased activity in industry and services, reinforcing President Luiz Inacio Lula da Silva’s pledge to raise living standards in Latin America’s largest economy.
Gross domestic product grew 0.9 percent in the three months to the end of June – a slowdown from the previous period – but exceeded the 0.3 percent quarter-on-quarter increase expected in a Reuters poll of analysts.
While production in the South American country’s vital agricultural sector declined after a strong harvest in the previous quarter, domestic demand accelerated on the back of higher household and government consumption.
Compared to the same quarter of 2022, GDP increased by 3.4 percent, according to official data issued by the Brazilian Institute of Geography and Statistics.
These strong numbers were welcomed by the administration of leftist leader Lula, who promised to increase public spending and the minimum wage.
The president has three times criticized the central bank’s double-digit interest rates as a drag on growth, and after Friday’s GDP release, he again took aim at the bank’s governor, Roberto Campos Neto. Lula said “he needs to lower interest rates” from their double-digit levels to encourage economic activity.
The institution began monetary easing by cutting half a percentage point last month, raising its lending index to 13.25 percent, but Lula wants it to accelerate the cycle.
“How will the entrepreneur invest? How will they build a factory?” “How can a businessman make any investment if he gets very high interest rates?” the 77-year-old Lula said at one event.
Brazil’s growth forecasts in 2023 have been constantly revised upward since the beginning of the year, when Lula took office after narrowly winning the election over hard-right populist Jair Bolsonaro.
However, some analysts expect a slowdown after a strong first half of the year, which included a 1.8 percent jump in GDP on a quarterly basis in the first three months.
William Jackson, chief emerging markets economist at Capital Economics, said the second-quarter numbers indicate that the Brazilian economy is in stronger health than many had thought.
“We believe growth will weaken over the second half of the year as Brazil’s terms of trade deteriorate, support from this year’s harvest eases, and fiscal support eases. But it now looks like the economy will easily expand by more than 3 percent in 2023.”
Independent economists last week on average expected an expansion of 2.3 percent in 2023, according to a central bank survey, up from a forecast of 0.8 percent at the beginning of the year.
Jackson added that the new expectations are likely to influence how monetary policymakers approach future interest rate decisions.
“The current strength of the economy may prevent the central bank from increasing the pace of its easing cycle from 50 basis points.”
Additional reporting by Beatrice Langella