World Economy

Brazil’s July Economic Activity Above Forecast

Brazil’s July Economic Activity Above ForecastBrazil’s July Economic Activity Above Forecast

Brazil’s economic activity in July rose more than economists forecast, as the central bank signals it will keep interest rates on hold in the world’s second-biggest emerging market.

The seasonally adjusted economic index, a proxy for gross domestic product, rose 1.50 percent in July from the prior month after contracting a revised 1.51 percent in June, the central bank said today in a report posted on its website. The median estimate from 30 economists surveyed by Bloomberg was for a 1 percent expansion.

Brazil’s economy slipped into recession in the second quarter as above-target inflation erodes consumer and business confidence. Moody’s Investors Service cut the nation’s credit rating outlook this week, citing “the absence of any signs of a recovery.” With presidential elections less than a month off, economic management has become central to the campaign.

The non-seasonally adjusted economic activity index fell 0.23 percent from a year ago, compared with a median estimate of a 1 percent drop, the central bank report said.

“The number was a surprise as there was no indication from industry or retail sales to support that,”Jankiel Santos, chief economist at Banco Espirito Santo de Investimento, said by phone from Sao Paulo. “Agriculture and services may have supported it, but this shouldn’t affect our economic expansion a lot. Instead of having extremely low growth, we will get very low growth”.

  Second Quarter

Brazil’s economy contracted 0.6 percent in the second quarter, following a revised 0.2 drop in the first three months of the year. Economists surveyed Sept. 5 by the central bank lowered their 2014 growth forecast for the 15th straight week, to 0.48 percent, down from 2.5 percent last year. Latin America’s largest bank, Itau, on Sept. 8 reduced its call to 0.1 percent.

Brazil’s retail sales in July fell 1.1 percent from June, surprising analysts who had predicted a 0.5 increase. Broad retail sales dropped 4.9 percent from the previous year.

Inflation accelerated to 0.25 percent in August from 0.01 percent in the previous month. Annual consumer price increases reached 6.51 percent, the national statistics agency said on Sept. 5. The central bank targets inflation at 4.5 percent plus or minus two percentage points.

With inflation above target, the central bank maintained the benchmark interest rate at 11 percent on Sept. 3, the highest since early 2012.