Precatórios, labor market and income may give breath to GDP in the 3rd quarter, says economist
By Márcia de Chiara
Source: O Estadão
The performance of the Gross Domestic Product (GDP) in the third quarter will be
super important to confirm whether or not the deceleration process that took place in the
second quarter continues and whether space will be opened for the Central Bank
to cut the basic interest rate, today at 15% per year, according to the assessment of BMG'
chief economist, Flávio Serrano.
He notes that the GDP result for the second quarter, which advanced 0.4%
compared to the previous quarter, had a significant deceleration. The GDP of the
first quarter had grown 1.4% compared to the fourth quarter
of 2024.
The central point now is to know how the activity will behave between July and
September, with the entry of R$ 60 billion into the economy due to the
payment of the precatórios, points out the economist.
Serrano observes that the level of household indebtedness is rising and yet
it is not possible to know how much of these extra resources will be directed to the
payment of debts and how much will go to consumption. "This will be fundamental
to see the impact of these disbursements on economic activity in the
third quarter."
The economist who previously predicted stability for GDP in the third quarter
compared to the second, now expects growth of 0.3% and considers the possibility that
part of this growth will "slip" to the fourth quarter.
Due to the inflow of resources from the precatórios, he revised the projection of GDP
growth for the year ended 2025 from 2.1% to 2.2% and not
dismisses the possibility that it will be close to 2.5%.
"The resilience of the labor market and, especially, the issue of dynamics
of income, put a little risk in the slowdown of activity," he says
Serrano
The following are the main excerpts from the interview.
How do you assess the economy in this second quarter of the year?
GDP grew 0.4%, slightly above our expectation of 0.3%
expansion in the period. On the supply side, there were positive surprises in
agriculture, which fell only 0.1%, and in industry, which grew 0.5%. Our >
what we projected. However, the other components of domestic demand
were weaker than expected. Government spending fell 0.6%
against our expectation of 0.2% growth, and gross capital formation
fixed fell 2.2%. We expected a drop of 0.6 points. The results show
that domestic demand decelerated a little more than expected, but this >
compared to a 3.1% retreat projected. Overall, the data for the second quarter
confirm the deceleration of domestic demand, an important point
for cooling inflation in the coming months.
How do you assess the 2.2% drop in investment? Is
We can say yes. There is also some of the very strong growth
of the first quarter, which advanced 3.1%. It was a very robust growth.
When this happens, there can usually be a return of part of the
growth. Sometimes, this also happens when it falls, because there may be
factors influencing. Remembering that, in the first quarter, there was
that issue of the oil platform, from Petrobras, which entered the
investment and pulled the result up. In the second quarter there was no
this. But we saw a drop in the production of capital goods and civil construction
is also weak. All these sectors depend more on the dynamics of interest rates.
Interest rates have been high for a while and are starting to have an effect on the economy.
We see some sectors that are already showing the impact. Others less because, for example,
example, household consumption is not only interest, it also has income. And as >
, but still grows relatively robustly. It is a
growth of 0.5%, which annualized reaches 2%.
Is the retreat of GDP growth from 1.4% in the first quarter to 0.4% in the
second quarter a significant deceleration?
Yes. But here we cannot forget that agriculture grew more
10% in the first quarter. Now it is slightly negative. It reflects a little
of how the agricultural GDP is calculated. Agriculture has
specific issues that explain the slowdown.
What do you expect for the third and fourth quarters?
We are starting to collect information from the activity for the month of July. The
projections for July show not very strong numbers. On Wednesday, 3.
industrial production should come out and we expect a drop of 0.3%. The performance of
commerce should be more or less sideways. Service may be a
little stronger in July. But an important point is that in July there were
disbursements of writs, which totaled R$ 60 billion. It may be that these
disbursements of precatórios can stimulate domestic demand now in the
third quarter, as happened in the first quarter of last year. There is
a risk that there will be a slightly stronger number (of GDP) in the third
quarter because of the precatórios.
What do you mean?
We have seen families with the level of debt rising. They can
use these resources to reduce debt or consume. How much will become
consumption and how much can become debt payment, we do not know. This will be
fundamental for us to see the impact of these disbursements on economic activity
in the third quarter.
How much do you project GDP performance for the third quarter?
The third quarter will be super important for us to see how the economy develops
. Whether the slowdown in activity continues or not. If these
effects of the precatórios end up stimulating the economy even more. We are
taking into account a part of the result coming from these effects. The
disbursement was important and we are estimating a GDP growth of one
slightly higher than we previously imagined. We had numbers
close to zero for the third and fourth quarters. Now, we are with
growth of 0.3% for the third and zero in the fourth. It may slip a
part to the fourth quarter. That is why the second half of the year will be so important
to have the confirmation of this process of slowing down the activity that, there
ahead, will be opening space for the BC (Central Bank) to cut interest rates. Without
this, there shouldn't be much room to cut interest rates.
And the year 2025 closed?
For the year ended 2025, the project grew by 2.2%.
Have you changed your projection for the year closed?
I had 2.1% and I changed it to 2.2% because of these disbursements (of the precatórios).
But I'm not changing now based on the data released recently.
Throughout September, we will start to have a taste of what this
third quarter result may be. For now, we are working with
hypotheses. There is a part that is of inertia of the economy, of a lagged effect of
interest, of a labor market with low unemployment. This part is calculated.
But there is a point that we call exogenous, which comes from outside, which is not
in the account, which is precisely this effect of the precatórios. We can't
estimate accurately. That's why the next two months, September and October,
will be super important for us to collect information and have an idea, whether,
in fact, it had an impact or not.
Are the reimbursement to INSS pensioners and retirees of fraud and
the new payroll loan considered in this account?
Yes, but we don't have the impacts, they are not clear. These are points that can
end up helping the activity in the coming months and avoid a greater slowdown
. For example, this can mean that, even in the fourth quarter, the
GDP will not be close to zero, but will reach 0.3%. And this year's GDP will be close
2.5%.
When will we really have a more robust deceleration of the
economy, an effect of interest rates?
We are already having a slowdown in activity, it is ongoing.
Why is it slow?
Because there are elements that are preventing a greater deceleration.
We just said that there is 0.6% of GDP coming in from precatories that were not
were in the account. The government disburses, pays people, pays firms,
companies, money that was not in the account comes in. There is a problem: on the >
deceleration (of activity) slows down. And the deceleration of inflation is
slower as well. As a consequence, it takes longer to cut interest rates. In
verdade, the scenario of the Focus Bulletin points to an improvement in the margin. It's a
very good thing. It can help the Central Bank to think about cuts for the end of the year and
beginning of next year.
Do you think that this scenario can delay the interest rate cut a little?
The resistance of the economy and, especially, the tight labor market,
they operate to delay the process. On the other hand, falling food prices
, falling prices of industrial goods, falling inflation expectations
are factors that help and can anticipate the process.
When will the Central Bank decide to cut interest rates?
When there are sufficient elements to reinforce the process of convergence
(of inflation) to the target. From now until the end of the year, we will be collecting
information to know the pace of deceleration of activity, such as inflation
is running at the margin, whether inflation expectations continued to fall or
not. If all of this I said continues to be ongoing, inflation is well
behaved, activity slows down and Focus improves, there will be interest rate cuts.
If the effect of the precatórios hits consumption and the economy accelerates in the third >
interest rates?
Could delay.
Today the market is working with interest rate cuts in the first
quarter. Would it be postponed to the second quarter?
No, it depends. The beginning of the easing process (of interest rates) will depend on >
of the (interest) cuts in January of next year. The issue is not only of the
precatórios, but of the resilience of the labor market itself, which puts a
little at risk this window of falling interest rates. There is this impulse of
precatórios, but there is the labor market that is still strong. This may < />make us have to wait even longer to start cutting interest rates. A
the issue of the resilience of the labor market and, especially, the issue of
income dynamics, pose a little risk in the slowdown of activity.
What will be the effect of the tariff on GDP? Where will it pick up?
Actually, it takes the export sector. Companies that export products
to the United States are directly affected. We don't know for sure the
magnitude. When a company is an exporter, it can seek new
markets. Most of our products sold to the United States
are commodities. So, it is possible to direct production from one side to the
other. Now there are other products that are very specific to the American market.
Each sector will react in a different way. But the net effect is a drop in activity,
because we are going to export less.
How much do you project GDP growth for 2026?
Growth of 1.6%.
It will be a nice slowdown, won't it?
Should. With a real interest rate of 10% for a year or so, the economy has to slow down.