In the second quarter of 2024, Brazil’s economy remained resilient, with real GDP increasing by 2.1% year-over-year in May. This growth was driven primarily by the services sector, which expanded by 2.5%, compensating for a 3.1% contraction in the agricultural sector. However, despite this positive outlook, the three-month annualized growth rate was only 1.1%, signaling a potential slowdown. Some of the weakness can be attributed to the devastating floods in Rio Grande do Sul, which disrupted production and transportation.
Excluding the effects of these floods, the economic outlook would likely be stronger. The Brazilian economy remains supported by a tight labor market and recovering business investment. The unemployment rate fell to its lowest level since 2014, sitting at 6.9% in May, with employment growth accelerating to 2.9% year-over-year. The private sector, in particular, showed strong growth, with employment increasing by 4.5%. Rising wages, up 5.6% in real terms, have boosted consumer confidence, translating to a 7.0% increase in retail sales, especially in sectors like food, motor vehicles, and pharmaceuticals.
However, there are risks to this growth. Despite the positive signs, concerns about inflation and fiscal imbalances loom large. Inflation was recorded at around 4% in May, and rising wages could fuel further price increases. In response, productivity growth, which was stagnant in early 2024, will need to improve to balance wage increases and prevent inflationary pressures from spiraling.