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PREVIEW-Investment seen keeping Brazil recovery alive in Q3
November 24, 2017 / 4:22 PM / 20 days ago

PREVIEW-Investment seen keeping Brazil recovery alive in Q3

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=BRGDP=ECI3DECI

By Bruno Federowski

SAO PAULO, Nov 24 (Reuters) - The Brazilian economy likely sustained its gradual recovery in the third quarter as a long-awaited upswing in investments ushered in the next phase of a rebound, a Reuters poll showed.

Gross domestic product (GDP) probably grew 0.2 percent from the second quarter, according to the median of 22 estimates.

That would mean the pace of growth was unchanged from the prior quarter, but the consensus among economists reflects more certainty that Brazil will sustain its recovery from the worst downturn in more than a century.

None of the forecasters expected to see a contraction in the data, scheduled for a Dec. 1 release. Estimates ranged from no change to 0.7 percent growth, compared to second-quarter forecasts as low as a 0.3 percent drop.

“While the headline number is not very impressive at first glance, there’s still plenty of good news,” said Alessandra Ribeiro, an economist at Tendências Consultoria. “Improvements in economic sentiment, employment and credit should trigger a rebound in investments extending into next year.”

Latin America’s largest economy slipped into recession three years ago, slashing GDP by 8 percent between the fourth quarter of 2014 and the end of 2016 as investments in machinery and facilities dropped dramatically.

Capital spending has fallen in 14 of the last 15 quarters as companies grappled with heavy debt loads and idle capacity, repeatedly defying forecasts by economists and policymakers predicting an investment-driven recovery.

The tide may finally be turning. Santander Brasil, the top forecaster of GDP figures in previous Reuters polls, predicted a 1.3 percent jump in investments, which would be the largest increase in four years.

As Brazil cuts interest rates toward all-time lows, firms have found it easier to cut debt and fund expansion plans. Efforts to privatize public airports and highways likely began to bear fruit in the quarter, Ribeiro said.

Construction firms are expected to be the latest sector to step up investments following years of stagnation as corruption scandals froze the activity of major engineering firms.

That would suggest Latin America’s largest economy is breaking with the pattern in more developed economies, which have struggled to foster investments since the financial crisis amid stubbornly low productivity.

ONGOING REFORMS

Economists cautioned that sustained investment growth in coming years, which they see as critical to the long-term health of the economy, will hinge on policymakers’ ability to curb growth of public debt, cut red tape and loosen regulations.

While President Michel Temer has pursued some belt-tightening efforts, including an unpopular proposal to trim social security, it is increasingly clear that the burden of reforms will fall to the winner of next year’s presidential election. But with Temer’s approval rating in single digits, campaigning to continue his reforms may be a tough sell.

The upswing in third-quarter investments should offset an expected slowdown in household spending, so far the biggest driver of economic growth, after it expanded in the second quarter at the fastest pace since 2014.

Though family spending is expected to rise, thanks to a faster-than-expected decline in unemployment and cheaper credit, demand may suffer with the fading effect of a government measure allowing workers to withdraw early from a severance fund.

That should still be enough to expand economic activity 1.3 percent from a year earlier, the fastest in almost three years, according to the median forecast of 19 economists, which ranged between 1 percent and 1.8 percent.

A Reuters poll in October forecast that Brazil’s GDP would grow 0.7 percent in 2017 and 2.3 percent in 2018. Should those expectations hold, the Brazilian economy would outpace the Mexican economy for the first time in five years. (Reporting by Bruno Federowski Editing by Chizu Nomiyama)

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