Brazil’s economic activity continued to slow in May

The Central Bank’s economic activity index (IBC-Br), a reliable bellwether for Brazilian GDP data, increased by 0.25 percent in May and fell short of the market consensus of 0.3 percent. This marks the second consecutive underwhelming monthly result for the economy, following 0.01 percent growth in April. In the past 12 months, the IBC-Br has […]

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The Central Bank’s economic activity index (IBC-Br), a reliable bellwether for Brazilian GDP data, increased by 0.25 percent in May and fell short of the market consensus of 0.3 percent. This marks the second consecutive underwhelming monthly result for the economy, following 0.01 percent growth in April.

In the past 12 months, the IBC-Br has risen 1.66 percent, down from 1.81 percent in April.

The IBC-Br comprises measures linked to the production volume monitoring of agriculture, manufacturing, and services output, in addition to an index that tracks the volume of taxes collected. It is considered a more reliable indicator when analyzed over the long term. According to today’s Focus Report, a weekly survey the Central Bank conducts with top-rated investment firms, the median GDP forecast for 2024 stands at 2.11 percent, a slight uptick from last week’s 2.1 percent.

This forecast is notably more optimistic than it was in January, when the median prediction stood at 1.78 percent. Analysts have factored in not only more robust growth but also more persistent inflation. 

The median inflation expectation for year-end 2024 stands at 4 percent, 0.2 points below the previous week but significantly above the 3 percent target. 

Analysts attribute the challenging inflation scenario to a deteriorating fiscal outlook, leading analysts to anticipate a more expensive U.S. dollar: BRL 5.22 today, up from BRL 5.13 four weeks ago. At the start of the year, analysts believed that the dollar would close the year below the psychological threshold of BRL 5.

Brazil’s real GDP growth was 0.8 percent in Q1 2024, driven by the services sector and a recovery in household spending. This trend is expected to continue in Q2 but may lose momentum due to the impacts of May’s massive floods in Rio Grande do Sul.

Last Friday, Itaú, the country’s largest private bank, published its latest outlook for the economy, projecting 0.6 percent GDP growth in Q2.”Some monthly indicators in May were weaker due to the impact of the floods in Rio Grande do Sul, but overall, economic activity has been resilient, especially in the consumption of goods,” said the bank’s analysts. While the services sector output remained stable in May, following two months of growth, Brazilian retail posted positive results for the fifth consecutive month.

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