(Bloomberg) — Brazil’s economic activity barely grew on the month in November as central bankers try to tame consumer demand by raising interest rates.
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The central bank’s economic activity index, a proxy for gross domestic product, ticked up 0.1% from the month prior, slightly above the forecast for no change from economists in a Bloomberg survey. From a year before, the gauge grew 4.11%, according to a report published Thursday.
The bank also revised October’s monthly growth to 0.09% from 0.14% before.
Overall activity in Latin America’s largest economy is finally showing signs of cooling after several stronger-than-expected quarters. Households’ disposable income has been boosted by low unemployment, and late last year the government announced tax breaks for poorer families. Still, central bankers have pledged to hike rates to 14.25% by March from the current level of 12.25%.
What Bloomberg Economic Says:
Headline Brazilian activity was surprisingly strong in November despite weak sector performances.
Our preliminary estimate for December activity is a 0.5% monthly decline and 3.7% year-over-year rise. That adds an upside bias to our forecast for a 0.1% rise in fourth-quarter GDP.
— Adriana Dupita, Brazil and Argentina economist
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Industrial production, retail sales and services volume all fell month-on-month in November, according to separate reports from the national statistics agency earlier in January.
Most analysts see gross domestic product expanding around 2% this year compared to expectations that the economy grew near 3.5% in 2024.
November’s activity reading shows the economy “won’t be able to defy the drag from external and domestic shocks,” Andres Abadia, chief economist for Latin America at Pantheon Macroeconomics, wrote in a report.
“Higher interest rates, unfavorable financial conditions and reduced fiscal stimulus will be key drags,” he added, though strong agricultural activity and a firm labor market will “prevent an uglier picture.”
Robust demand in recent months propelled annual inflation further above the central bank’s 3% target. Consumer prices rose 4.83% from a year prior in December, as food items and industrial goods get more expensive due to severe weather and a weaker real.
Story continues
A strong economy was one of the drivers of the inflation spike in 2024, central bank Governor Gabriel Galipolo wrote in a public letter published last week. Yet, there’s “little doubt” borrowing costs are headed toward a “quite restrictive” level, the institution’s Economic Policy Director Diogo Guillen said on Monday, adding he is “confident” the bank has the tools needed to tame inflation.
Investors are closely monitoring the government’s spending as skepticism grows over President Luiz Inacio Lula da Silva’s pledges to shore up public accounts. An austerity package that was watered down by Congress together with plans to further boost consumption among low-income families sparked a financial market rout last year, prompting the real to weaken to a record low.
A “significant” exchange depreciation that has mainly been driven by domestic factors was one of the main reasons why annual inflation overshot the bank’s tolerance range ceiling in 2024, Galipolo said.
–With assistance from Giovanna Serafim.
(Updates with economist comments starting in fifth paragraph)
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