Strong exports by commodities-producing sectors were seen adding to resilient private consumption in lifting gross domestic product (GDP), despite the negative effects of high interest rates and a worrying rise in government debt.
GDP is forecast to increase 1.3% in January-March over the fourth quarter, after a 0.2% contraction in the last three months of 2022, according to the median estimate of 18 forecasts taken between May 24 and 30. The data is due on Thursday.
"Economic activity indicators have been surprising to the upside throughout 1Q23. The agriculture sector has been performing very well and Brazil is set to have a record high harvest of grain this year," HSBC analysts wrote in a report.
The country logged big trade surpluses at the start of 2023, derived from extraordinary yields in its harvest of soybeans and corn. This coincided with a boom in oil exports as drilling operations multiply.
Meanwhile, consumer spending has remained firm thanks to a pause in inflationary trends this year that is giving Brazilian households a boost and driving higher than expected retail sales.
President Luiz Inacio Lula da Silva's initiative to reinforce welfare programmes is also expected to be reflected in last quarter's figures, with rising public expenditure pushing primary deficits above estimates.
But industrial production in general stayed relatively muted in the first three months, struggling to gather steam in the face of the central bank's reluctance to cut its benchmark rate that, at a steep 13.75%, is choking credit.
Such high financial costs, besides Lula's increased social spending, is causing Brazil's debt trajectory to worsen further. This has prompted the government and its allies to press on with the approval of new fiscal rules in Congress.
Improving sentiment is leading to upgrades in growth estimates for this year and 2024. Last week, JPMorgan raised its 2023 GDP growth forecast to 1.7% from 0.9% and next year's projection to 1.0% from 0.8%.
Investors are giving Lula's government the benefit of the doubt so far, which has translated into a spell of calm in financial markets. Stats agency IBGE is set to publish GDP data on Thursday at 0900 local time (1200 GMT).
(Reporting and polling by Gabriel Burin; Editing by Jonathan Cable, Ross Finley and David Holmes)
By Gabriel Burin
