Brazil Economy Grows Less Than Expected in May Amid High Rates
(Bloomberg) -- Brazil’s economy grew slightly less than expected in May though prior figures were revised up, the central bank’s main gauge of activity showed amid signs that borrowing costs will stay high for longer.
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The bank’s economic activity index, a proxy for gross domestic product, rose 0.25% from April, below the 0.3% median estimate from analysts in a Bloomberg survey. Still, April’s monthly growth was revised to 0.26% from 0.01% previously, according to data published on Monday. From a year ago, the gauge gained 1.3%, the report added.
Growth estimates for Latin America’s largest economy this year have ticked higher in recent months. In that context, policymakers led by Roberto Campos Neto held interest rates steady at 10.5% in June, pausing a nearly yearlong easing cycle. Most analysts bet they won’t resume cuts this year, and forecast the benchmark Selic will end 2025 at 9.5%, according to a separate report published on Monday.
Central bankers are closely monitoring the pace of growth amid some signs of resilience. Retail sales jumped in May, while services also fared better-than-expected in the same month and the labor market remains tight.
“This print supports our estimates of growth above 2%,” this year, said Laiz Carvalho, an economist at BNP Paribas. May’s data and April’s upward revisions indicate the economic impacts of record floods in the south of the country are dissipating. “Better numbers of retail sales, industrial production and services are all adding to a positive perspective,” she said.
Annual inflation accelerated less than expected in June as prices pressures from heavy floods in the south of the country dissipated. Most analysts see cost-of-living increases above the 3% target for the foreseeable future, ending 2024 at 4% and 2025 at 3.9%.
Brazil President Luiz Inacio Lula da Silva, who is seeking to spur the economy through public spending, has slammed the bank’s decision to keep borrowing costs elevated. Lula will pick a new governor and two bank directors this year, potentially clearing the way for him to exert more influence on the board.
Still, on Friday Finance Minister Fernando Haddad said Lula’s outrage toward the nation’s central bank has passed.
--With assistance from Giovanna Serafim.
(Updates with economist comments in fifth paragraph)
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