Brazil’s January economic activity exceeded expectations, indicated by a 0.9% rise in the IBC-Br index. This growth bodes well for GDP in early 2025 but concerns remain about the impact of rising interest rates. The central bank is poised for a possible 100 basis point increase in its rate next week.
Brazil’s economic activity in January surpassed expectations, as reported by the central bank on Monday. This uptick is especially significant ahead of the upcoming monetary policy meeting, where economic performance will greatly influence the central bank’s decisions. The IBC-Br index, a key indicator of gross domestic product (GDP), increased by 0.9% in seasonally adjusted terms from December, outpacing all predictions in a recent Reuters survey of economists.
The median forecast anticipated a modest increase of 0.22%, with the highest estimate reaching 0.60%. Additionally, when viewed on a non-seasonally adjusted basis, the index, which accounts for outputs in agriculture, industry, services, and tax production data, recorded a growth of 3.6% from January 2024 and 3.8% over the past year.
Rafael Perez, an economist at Suno Research, stated, “This IBC-Br data indicates that Brazil’s GDP is likely to post strong growth in the first quarter of 2025, driven by a record grain crop, particularly soybeans.” However, he cautioned that from the second quarter onward, tightening borrowing costs might begin to impact credit and overall economic activity.
Since initiating a tightening cycle in September, the central bank has raised its benchmark interest rate by 275 basis points, bringing it to 13.25%. This move was aimed at managing inflation, which remains under pressure due to a robust economy and strong labor market. The central bank is expected to increase rates by an additional 100 basis points in its upcoming meeting on Wednesday.
Traders and market participants are awaiting signals regarding future central bank decisions, especially following lower-than-expected fourth-quarter GDP data released earlier this month. The central bank’s economic policy director commented that it remains premature to confirm a definitive cooling trend in activity, noting the existence of mixed data thus far this year, with strength observed in certain indicators.
In summary, Brazil’s economic performance in January exceeded forecasts, signaling potential strong GDP growth in early 2025, particularly driven by agricultural output. However, the pending effects of increased borrowing costs may begin to exert downward pressure on credit and economic activity later in the year. The central bank’s forthcoming interest rate decision will be pivotal in shaping economic policy and future growth expectations.
Original Source: www.tradingview.com
