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Brazil’s GDP predictor shows worst monthly drop since March 2021

The Central Bank’s Economic Activity Index (IBC-Br) fell 1.13 percent in August, indicating an economic slowdown. The index is considered to be a reliable predictor of GDP.

August’s results were much worse than expected by markets (Itaú, for instance, foresaw a drop of just 0.1 percent). They also interrupted two months of growth and were the worst performance since March 2021, when Brazil was still at the beginning of its coronavirus vaccination campaign, and many Covid restrictions were still in place.

In an analysis published after the disclosure of the IBC-Br index, Santander said August’s performance reflected mixed signals from multiple sectors, with a boom in services compensating for drops in industrial and retail activities. The bank still believes in a 1.34-percent GDP growth rate for Q3.

After President Jair Bolsonaro boosted cash-transfer payments and carried out measures to hold inflation down, many expected an improvement in household purchasing power and an increase in demand.

Analysts believed that positive effects on the economy would only dissipate later in the year, people would feel the effects of the Central Bank’s monetary tightening policy harder. It remains to be seen if August was a blip or an indication of more trouble for the economy.

Still, markets continue to bullish on their economic prospects. They again raised their GDP growth forecast for 2022 to 2.71 percent (up from 2.65 percent a month ago) and lowered year-end inflation prospects.

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