Ipea Economic Outlook Summary

By José Ronaldo de Castro S. Júnior, Paulo Mansur Levy, Marco Antônio F. de H. Cavalcanti and Christian Vonbun

The performance of the Brazilian economy in the third quarter of 2018 was affected by an increasing instability in the financial markets, combined with a sluggish recovery in economic activity. The forecast of GDP growth accelerated to 1.1% qoqsa, but it must be taken into account that it happened immediately after a severe supply shock due to the truck drivers’ strike, making the basis of comparison a weak one.

The increasing instability is due to several domestic and external motives. On the external front, the economic landscape is becoming less favorable to emerging economies, mainly due to United States’ monetary policy normalization, as well as to devaluation episodes in Argentina and Turkey, increasing the perception of risk in the international markets.

On the domestic front, electoral uncertainties and the deeply unbalanced fiscal stance is spurring heightened risk premia and stark financial conditions. This is negatively affecting consumption and investment decisions by economic agents.

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