Brazil February Economic Activity Rises Above All Estimates

Brazil February Economic Activity Rises Above All Estimates

By Mario Sergio Lima/Bloomberg

8:46 AM BRT
April 15, 2015

Brazil’s economy unexpectedly expanded in February, as the government cuts spending and policy makers raise rates to tame above-target inflation in the world’s second-biggest emerging market.

The seasonally adjusted economic index, a proxy for gross domestic product, rose 0.36 percent in February from the prior month after dropping 0.11 percent in January, the central bank said today in a report posted on its website. That was a better result than every estimate from 31 economists surveyed by Bloomberg, whose median forecast was for a 0.20 percent drop.

The non-seasonally adjusted economic activity index fell 3.16 percent from a year ago, compared with a median estimate of a 4 percent decline.

Analysts forecast Brazil’s economy will shrink this year even as inflation breaches the ceiling of the target range for the first time since 2003. President Dilma Rousseff’s government is negotiating support for austerity measures in Congress to trim the budget deficit, with Finance Minister Joaquim Levy arguing that fiscal discipline is necessary for Brazil to resume sustainable growth.

“We don’t see today’s positive print as indicative of the forward growth dynamics,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a report. “We expect the economy to face increasing headwinds” from fiscal adjustments and depressed confidence, Ramos added.

Swap rates on the contract due in January 2017, the most traded in Sao Paulo today, rose nine basis points, or 0.09 percentage point, to 13.05 percent at 9:14 local time. The real weakened by 0.8 percent to 3.0875 per U.S. dollar.

Central Bank

Economists surveyed by the central bank see this year’s gross domestic product dropping 1.01 percent, while inflation ends the year at 8.13 percent. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Consumer prices rose less than analysts expected in March, according to a report released April 8. Annual inflation through that month rose 8.13 percent, the highest since December 2003. Prices are being stoked by a real that has fallen 13 percent this year against the dollar, and higher costs of government-regulated prices such as electricity.

Monetary policy makers in March raised the benchmark interest rate for the fourth straight time, to 12.75 percent. Economists in the survey predict the Selic rate will end the year at 13.25 percent. Brazil’s inflation outlook hasn’t improved enough to allow policy makers to lower their guard, central bank President Alexandre Tombini said Tuesday.

Brazil’s economy unexpectedly grew in the fourth quarter last year as gross domestic product rose 0.3 percent from the three previous months. Analysts who had forecast stagnation for full-year 2014 were surprised by growth of 0.1 percent, down from a revised 2.7 percent in 2013. The statistics agency used a new methodology to arrive at the GDP numbers.