Defying expectations, the Brazilian economy continues to stubbornly post stellar indicators. Growth in April reached 0.56 percent per the Central Bank’s economic activity index (IBC-Br), considered to be a reliable GDP predictor.
This was the indicator’s most significant monthly advance since December 2013, beating most analysts’ expectations of 0.2 percent growth (according to a Reuters poll). The result comes on the heels of multiple positive Q1 results, largely driven by agribusiness.
Economists and market analysts expected activity to decelerate in April after the output from the services sector — the backbone of the Brazilian economy — was down by 1.6 percent that month, and industrial and retail sectors showed apparent inertia.
One explanation for the positive April result may be that the economy is still feeling the effects of the agribusiness-led boost in the first months of the year. Compared with April last year, the IBC-Br index grew 3.31 percent.
More important than the monthly growth rates, however, are the long-term IBC-Br trends, usually much more aligned with official GDP figures. In the 12 months through April, Brazil’s economic activity expanded 3.43 percent.
The positive economic results come as inflation is cooling (at least for now; the Central Bank expects price hikes to gain steam in the second half of the year). The government hopes all this will herald cuts to benchmark interest rates, which have sat at 13.75 percent since August.
Higher interest rates are an oft-used strategy to curb consumption and borrowing to slow down inflation. Brazil began its monetary tightening earlier than most countries, in March 2021. Local companies now expect the Brazilian Central Bank to be one of the first to start rolling back this bitter pill.
The Central Bank holds a policy meeting next week. Most economists believe that no cuts will be announced, but say that a shift in guidance could be suggested for August.
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