Brazil Showing Signs of Recovery

Economic activity in Brazil expanded at a faster pace than expected in June, the latest in a batch of reports suggesting an economic recovery may be taking hold. Economic activity rose 0.50% from May after seasonal adjustments, the central bank said.

 The central bank also revised the previous month’s reading to show a 0.37% decline, smaller than the originally reported 0.51% drop, marcopress reported.

The reading suggests aggressive interest rate cuts may be having some effect on Latin America’s largest economy as it emerges from its deepest recession in decades.

The central bank reduced the benchmark Selic interest rate to the lowest in four years as inflation plunged below the bottom end of its target range. Economists widely expect rates to fall even more, providing support to the still-ailing economy.

Optimism over Brazil’s economic prospects has been growing after retail sales and industrial output figures handily beat expectations this month, driving forecasters such as JPMorgan Securities to consider raising their gross domestic product estimates for the second quarter.

Central bank’s activity index rose 0.25% in the second quarter, down from a 1.2% increase in the first quarter.

However, analysts remain cautious as they monitor the country’s political environment, and, more importantly, the possibility of an accelerated rise in the United States’ interest rate.

“Given this scenario of political turbulence these past few months, we believe that the country’s economic performance [during the second quarter] was reasonable, indicating that the three-year recession may be coming to an end”, said Fabio Ramos, who works at UBS.

Despite Brazil’s weak results, a central bank indicator that predicts gross domestic product, Ramos believes that the country’s performance was not disappointing.

Flavio Serrano, an economist at Haitong, said that Brazil’s June economic results reduce the possibility of a negative prediction concerning the country’s second quarter GDP results.

Serrano believes that even if the country’s economic activity during the second quarter turns out to be negative, it is still safe to assume that the economy has reached a “turning point. But that doesn’t mean that we will grow remarkably. This is a transition period”.