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LATIN AMERICA | 19-02-2024 14:05

Brazil’s economic activity caps 2023 with better-than expected growth

Brazil’s economy grew more than expected in December, indicating activity is still showing some resilience to high interest rates as President Luiz Inacio Lula da Silva readies higher government spending. 

Brazil’s economy grew more than expected in December, indicating activity is still showing some resilience to high interest rates as President Luiz Inácio Lula da Silva readies higher government spending. 

The central bank’s economic activity index, a proxy for gross domestic product, rose 0.82 percent from the month prior, more than the 0.75 percent median estimate from analysts in a Bloomberg survey. From a year ago, the gauge gained 1.36 percent, according to data published on Monday.

The same index showed Brazil’s economy grew 2.45 percent for 2023 as a whole. 

Latin America’s largest economy is trying to find firmer footing as central bankers relax monetary policy. Industrial production grew more than all estimates in December, while policymakers say early data on tax collections and exports are reasons to remain optimistic about growth in the first quarter. Still, borrowing costs are at restrictive levels, hindering sectors such as retail. 

December’s rise in economic activity — following months of lacklustre performances — eases some of the pressure on Finance Minister Fernando Haddad to pump fiscal stimulus into the economy. The result points to 2023 GDP growth at around or slightly below three percent and reinforces our call for continuing gradual monetary easing in the coming months.

Central bankers led by Roberto Campos Neto cut the benchmark Selic to 11.25 percent last month, part of an easing cycle that’s lowered interest rates by 2.5 percentage points so far. Policymakers have signalled at least two more half-point drops ahead, reaffirming that a gradual easing pace allows them to monitor rising prices of food and concerns surrounding services costs. 

Most analysts bet the economy will grow at a slower pace than last year, challenging Lula’s promises to deliver greater prosperity for all.

The leftist president’s economic team is planning to boost industry and increase subsidized loans. At the same time, they are also negotiating with lawmakers on ways to raise revenues and strengthen public coffers.

by María Eloisa Capurro, Bloomberg

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