Economic activity in Brazil contracted for the third month in a row in October. Which suggests that 2023 will end weaker, and the high interest rates of the central bank eventually led to a slowdown in growth.
The bank’s index of economic activity, a measure of gross domestic product, decreased by 0.06% compared to the previous month. This is practically in line with analysts ‘ forecasts of a decrease of 0.1%. On an annual basis, activity increased by 1.54%. According to the data released.
Those responsible for monetary policy, headed by Roberto Campos Neto, and although borrowing costs began to fall, they reinforced the need to maintain a tight monetary policy to control inflation. The benchmark Celik index has been reduced by two percentage points since August to 11.75%, with further cuts expected next year. Consumer prices rose at a more modest pace, although inflation expectations for 2024 and beyond remain above target.
Brazil’s economy has slowed down and central banks are gradually moving towards lowering interest rates
Latin America’s largest economy has largely resisted high interest rates. The year 2023 has grown beyond most forecasts. After a bumper harvest in the first months of the year, households have benefited from higher public spending, low inflation and a stronger labour market. However, retail sales unexpectedly fell in October, and industrial production barely grew that month.
Monetary policymakers said household consumption remained relatively strong while private investment slowed. Economists expect GDP to grow by 3% this year and 1.5% in 2024.
Brazil’s potential GDP is expected to continue to increase in the coming years as the long-awaited tax reform passed by Congress this week comes into full effect. The long-term benefits of this reform were among the reasons cited by the credit rating agency Standard & Poor’s on Tuesday for raising Brazil’s sovereign rating.
