The Brazilian Central Bank’s economic activity index, known as IBC-Br – a well-regarded gauge of Brazil’s gross domestic product (GDP) – notched an uptick of just 0.01 percent in April, falling short of the market consensus which forecast a rise of 0.45 percent. This followed a decline of 0.34 percent in March.
Despite this seemingly sluggish performance in the short term, the IBC-Br has climbed 4.01 percent over the past year and 2.08 percent since the beginning of the year, reflecting a more favorable trajectory in the longer term. The index, which factors in proxies tied to the production volumes in agriculture, manufacturing, and services, as well as a metric monitoring the volume of taxes collected, is considered a reliable economic barometer when assessed over an extended period.
Market pundits still consider the index’s annual growth a positive sign for Brazil’s economy, even as monthly data suggests a less upbeat trajectory. The market’s median expectation, according to the Central Bank’s most recent Focus Report, pegs economic growth at 2.09 percent for the current year, a noticeable uptick from January’s median prediction of 1.78 percent. Analysts, however, have tempered their growth expectations with forecasts of more persistent inflation.
Although they see little room for further reductions to the country’s benchmark interest rate, analysts with Itaú – Brazil’s largest private bank – reiterate their projection of 2.3 percent GDP growth for the year. The bank’s previous projections took into account the potential economic fallout from floods in Brazil’s southern region, resulting in “greater uncertainty for the second quarter and some downward bias,” but the bank has opted to hold its forecast pending more precise data.
The Brazilian economy clocked an actual growth rate of 0.8 percent in the first quarter, spurred by the country’s service sector and a resurgence in domestic consumption, in line with Brazil’s conventional growth formula predicated on internal demand.
Alberto Ramos, Goldman Sachs’s chief economist for Latin America, affirmed that Brazil’s economic activity in 2024 will likely continue to gain from substantial fiscal stimulus, a generous increase in the minimum wage, and the reversal in the credit cycle. He, however, acknowledged that continuing restrictive domestic monetary conditions, worsening policy uncertainty, and the waning impact from the bulky BRL 94 billion in government court-ordered repayments, also known as precatórios, are likely to present challenging headwinds.
