We see some downside risks to our forecast of 3.5% growth in 2018.

Economic activity continued to grow in November. On a year-over-year basis, the EMAE (official monthly GDP proxy) expanded 3.9%, slightly below the market consensus of 4%, according to Bloomberg. The EMAE is now 2.9% higher in the first eleven months of 2017 than in the same period a year earlier. On a sequential basis, the economy grew 0.4% MoM/SA in November, outpacing the upwardly revised growth of 0.3% in October. At the margin, activity remained flat quarter over quarter, annualized, after growing 1% in the quarter ended in October.

Construction sector maintains leadership in broad-based annual growth. Construction grew 16.6% YoY in November and 15.8% YoY in the last three months, driven by public sector infrastructure expenditures. Manufacturing output increased by 3.6% YoY in the same month (benefited by the recovery in Brazil) and 3.0% YoY in the quarter ending in November. The Service sector gained 2.8% YoY, while agriculture and other primary activities increased by a modest 1.2% YoY.

According to our seasonal adjustment, all sectors showed some deceleration in the quarter ending in November. Manufacturing fell 4.7% annualized, down from 4.1% in the previous quarter. Services fell 0.7%, following a 0.4% expansion in the quarter ended in October. Primary production activities retreated 5.6% (-2.8% previously). Construction continued to expand, posting a 10.7% increase.

We see some downside risks to our forecast of 3.5% growth in 2018, given the recent deceleration observed in many sectors. Even so, we estimate that improved sentiment for investment and a better economic outlook for Brazil will help sustain economic growth. We expect the economy to post a 2.9% expansion in 2017.

Juan Carlos Barboza
Diego Ciongo