Real GDP grew +0.4% q/q (+1% y/y) in line with our expectations, after contracting -0.1% q/q (+0.5% y/y) in Q1. Brazil hence avoided a recession (two straight quarters of q/q contraction) helped by rebounding investment (+3.2% q/q after -1.2% in Q1). However, investment still accounts for just 16.1% of GDP in real terms, around early 2016 levels and much below the last peak of 21% in 2013. Public consumption dropped -1% q/q (-0.7% y/y) as the government continued tightening its belt to boost public savings, lower the fiscal deficit and stabilize the public debt-to-GDP ratio. Yet the aggregate national savings rate declined, despite such efforts, probably reflecting a cautious consumer. We expect real GDP to grow +1% this year after +1.1% in the past two years, as the level of slack in the economy is still high (12% unemployment rate and below-average corporate capacity utilization rate). Growth should finally – but only moderately – accelerate in 2020, as a watered-down pension reform and the first privatizations start to bear fruit, somewhat boosting business and consumer confidence.
