BRASILIA (Reuters) – Brazil’s economic activity surprised analysts in August, according to central bank data. This positive momentum led to a tightening of monetary policy last month.
Central bank officials cited stronger activity as a reason for adjusting interest rates, which affects inflation expectations that remain above the target.
The IBC-Br index, an early indicator of GDP, rose by a seasonally adjusted 0.2% in August, contrary to economists’ predictions of no change. Year-on-year, it grew 3.1% compared to August 2023.
Earlier reports showed an unexpected drop in the services sector, a key part of Brazil’s economy, while retail sales also fell slightly. However, industrial output saw minor growth.
Goldman Sachs economist Alberto Ramos believes Brazil will benefit from fiscal support, higher wages, and better credit conditions, though tight monetary policy may pose challenges.
Last month, the central bank raised the benchmark interest rate by 25 basis points to 10.75%. The market anticipates further hikes, with a strong chance of a 50 basis-point increase next month.
XP economist Rodolfo Margato predicts moderate growth in the second half of the year, forecasting a 3.1% GDP increase for 2024.
The government recently raised its GDP growth forecast to 3.2% for this year, up from 2.5% previously, driven by a strong labor market bolstering consumer demand. However, Finance Minister Fernando Haddad hinted that the forecast may need adjustments again.
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