Renewable Energy

Brazil economic activity on longest contraction streak since 2016 recession

Credit: REUTERS/Pilar Olivares

Brazilian economic activity unexpectedly fell in April, a central bank indicator showed on Friday, marking the longest stretch of declining activity since the last recession in 2016 and a stark warning the economy may be heading back there.

By Jamie McGeever

BRASILIA, June 14 (Reuters) - Brazilian economic activity unexpectedly fell in April, a central bank indicator showed on Friday, marking the longest stretch of declining activity since the last recession in 2016 and a stark warning the economy may be heading back there.

The central bank's IBC-Br economic activity index, a leading indicator of gross domestic product (GDP), was minus 0.47% in April from March, well below the median forecast in a Reuters poll of economists plus 0.20%.

It was the fourth consecutive decline, a run not seen since the first half of 2016 when Brazil was mired in one of the worst recessions in its history. With GDP having contracted 0.2% in the first quarter, this is the clearest warning yet that another contraction in the second quarter could be in the cards.

"Were activity during May-June to remain constant at the April level, real GDP would decline a seasonally adjusted 1.0% in the second quarter," Alberto Ramos, head of Latin American research at Goldman Sachs in New York, wrote in a note.

According to Ramos, the IBC-Br index shows real GDP in Brazil is still 8.6% below the December 2013 cycle peak, and just 2.9% above the December 2016 trough, "rendering this the weakest cyclical recovery on record."

Compared with the same month last year, activity fell 0.6% in April, the central bank said.

The IBC-Br index for April mirrors other economic indicators, such as the IHS-Markit purchasing managers indexes, which showed that activity in both services and manufacturing contracted in the month.

Brazil's central bank's policymaking committee known as Copom meets next week, and is widely expected to leave interest rates on hold at a record low 6.50%.

But the weak economy is pushing longer-term market forecasts toward eventual rate cuts. On Thursday, 2020 rates futures contracts fell below 6.0% for the first time, suggesting around 50 basis points of easing over the next year or so is now being priced in.

(Reporting by Jamie McGeever; Editing by Bernadette Baum and Jeffrey Benkoe)

((jamie.mcgeever@thomsonreuters.com; +55 (0)61 3426 7015; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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