“The economy is still opening up in the wake of the pandemic and we’re seeing those gains in the first half of this year. People are finding jobs again and the employed population is rising,” said Felipe Salles, chief economist at C6 Bank. More government stimulus measures, in the form of welfare spending, early pension withdrawals and a higher minimum wage, also helped to restore consumers’ purchasing power in the face of annual inflation topping 10%.
Central bank chief Roberto Campos Neto said this week he sees expectations for growth this year improving as the labor market recovers and global demand for the country’s commodity exports stays hot. Some economists warned at the start of this year of a possible recession but Campos Neto said the market outlook is now for around 1.5%-2% growth and rising. A strike by civil servants has disrupted publication of the central bank’s weekly survey of private economists.
Still, upward revisions to economic data for the second half of 2021 showed growth picking up earlier than previously thought, as widespread vaccination softened the impact of COVID-19 and eased restrictions on activity. Brazil’s unemployment rate fell to a six-year low in the three months to March, boosting household demand and services activity, which were the main drivers for GDP growth in the quarter, IBGE reported.
Brazil’s central bank has also hiked interest rates into double digits to contain the inflationary pressure, which economists expect will put a damper on growth later this year, when President Jair Bolsonaro is up for re-election in October. “The central bank’s rate hikes should hit the economy mainly during the second half of the year. In heavy industry and civil construction, no one is feeling the rising interest rates yet,” said Roberto Padovani, chief economist at Banco BV.