Brazil GDP up 2.9% on agriculture, chems lead fall in manufacturing output

SAO PAULO (ICIS)–Brazil’s chemical sector led a fall in manufacturing output in 2023, but the story was more positive for the rest of the economy which grew 2.9% compared with 2022, according to national statistics office IBGE.

Despite the large annual increase, economists are warning that output sharply decelerated in the two final quarters of the year, which could pose a headwind in coming quarters.

WEAK CHEMICAL SECTOR
IBGE’s final figures for manufacturing output in 2023 confirmed what Brazilian chemicals producers, who have been besieged by cheaper imports, have been complaining about for months through their trade group Abiquim.

Industrial growth increased 1.6%, but much of this was due to the extractive industries which were up nearly 9% compared with 2022, with oil and gas both posting strong performances.

However, manufacturing output – an industrial subgroup –  decreased 1.3% year on year in 2023, with chemicals and other key end markets seeing negative growth.

“[The fall was] mainly caused by the drop in the manufacturing of chemical products, machines and equipment, metallurgy and the automotive industry,” said IBGE.

Automotive is a key end market for chemicals. In addition, IBGE said output in the equally petrochemicals-intensive construction sector had fallen by 0.5% in 2023 year on year.

However, many manufacturing companies will be hoping that a healthy performance at the beginning of 2024 can be sustained through the year.

This was after the manufacturing PMI index entered expansion territory in January and February after 11 months of contraction.

Brazil manufacturing	January 2024	December 2023	November	October	September	August	July	June	May	April	March	February
PMI index	52.8	48.4	49.4	48.6	49.0	50.1	47.8	46.6	47.1	44.3	47.0	49.2

Source: S&P Global

AGRICULTURE PROPS UP GROWTH
Output in the fertilizer-intensive agricultural sector rose by 15.1% year on year in 2023, lifted by record high harvests mostly in the first half of the year.

Brazil’s agricultural sector is very export-focused and the country is fast becoming one of the world’s  breadbaskets. The past two years – since Russia invaded Ukraine – has seen its position strengthen, with the war disrupting output from two key European producers.

Agriculture now accounts for around a quarter of the country’s output, with the Brazilian climate allowing farmers to plant two harvest per year for several crops.

“According to the Systematic Survey of Agricultural Production (LSPA/IBGE), several crops recorded production growth in the year 2023, with highlights being soybeans (27.1%) and corn (19.0%), which achieved record productions in the historic series,” said the statistics office.

“On the other hand, some crops recorded a drop in the annual production estimate, such as, for example, wheat (-22.8%), oranges (-7.4%) and rice (-3.5%).”

Output from Brazil’s services sector rose by 2.4% in 2023 year on year compared with 2022.

As a result, Brazilian output rose to Brazilian reais (R) 10.9 trillion ($2.19 trillion) in 2023, said IBGE, putting it among the world’s 10 largest economies.

However, Brazil remains an emerging market. GDP per capita for the country’s 215 million inhabitants is just over R50,000 ($10,130). For most, salaries remain low. Last year, the minimum wage was just above R1,300 ($260).

GDP per capita is below some of its main Latin American peers. The economic performance of Brazil and Argentina are intertwined as they have strong bilateral ties and the two are often compared to each another.

In 2023, GDP per capita in Argentina was well over Brazil’s at $13,700, even though it has been in a long economic crisis.

SLOWING TREND
Brazilian GDP of 2.9% in 2023 was in stark contrast to most forecasts from private and public bodies at the beginning of the year, when most expected it to grow by around 1%.

Healthy harvests in the first half of the year propped up growth, but IBGE said quarterly growth in Q4 was flat with Q3, when it was already flat compared with the April-June quarter.

The government of Luiz Inacio Lula da Silva, who took office in January 2023, was quick to highlight how the final GDP growth figure was far higher than its own expectations.

However, the clear deceleration in second-half output has raised alarm bells among some, who said “it was clear” that much of the growth now celebrated by the government had taken place in H1, according to Jorge Jatoba, an economist quoted on financial news site Movimento Economico.

“In the second half, the economy performed poorly. Q3 and Q4 had practically zero growth, compared to the previous quarter,” said Jatoba.

“The general analysis of the year is good news – but not that much.”

Focus article by Jonathan Lopez

($1 = R4.95)