The 1.37% variation in the Central Bank’s Economic Activity Index (IBC-Br) in June, above expectations, led the market to increase its estimates for the Gross Domestic Product (GDP) for the year. A survey by Projeções Broadcast shows that the median for growth in the indicator in the second quarter went from 0.5% to 0.9%; for the year, it went from 2.2% to 2.4%, compared to the survey conducted on July 15.
The IBC-Br is considered a “preview” of the official GDP, calculated by the IBGE. According to analysts, the increase in June confirmed the perception that the effects of the floods in Rio Grande do Sul on activity were less intense than expected. This scenario of economic growth, with possible pressure on inflation, also reinforced the assessment by part of the market that the Monetary Policy Committee (Copom) of the Central Bank may resume the cycle of increases in the Selic (the basic interest rate) this year.
“Both the IBC-Br headline and the IBGE sectoral surveys showed that the effect of Rio Grande do Sul was not very significant on activity,” said Daniel Xavier, chief economist at Banco ABC Brasil. In May, the bank’s projection was for GDP growth of 0.4% in the second quarter and 2.2% for the year. Now, both estimates have been raised: to 0.9% and 2.6%, respectively.
Xavier attributes the revisions to the positive effect of consumption, especially in the services sector, and to the strength of the labor market, in a context of real growth (above inflation) in income and wages. “We had widespread growth and the vectors that could bring GDP down did not materialize.”
But the economist also raised his projections for the Selic rate trajectory this year (from 10.50% to 11.25%) and for 2025 (from 9.0% to 9.75%), following statements by Central Bank directors advocating tightening monetary policy if the IPCA remains outside the target. Xavier foresees the start of the interest rate hike as early as the next Copom meeting, in September, with three increases of 0.25 percentage points until the end of the year.
For Galápagos’ chief economist, Tatiana Pinheiro, the stronger IBC-Br result should lead the Central Bank to maintain a cautious stance. “I expect the Selic rate to remain at 10.5%, but the stronger economy, accelerating even at the margin, should keep the market suspicious of a greater possibility of a new upward cycle,” she said.
Galápagos expects GDP to grow by 0.7% in the second quarter, but Tatiana acknowledges that there is a possibility of even greater growth than in the first quarter, when activity grew by 0.8% on the margin.
Risk of interest rate hike ‘deserves attention’, says economist
MB Associados’ chief economist, Sergio Vale, raised his estimate for second-quarter GDP from 0.8% to 1.2%, following strong domestic activity figures in June. For 2024, MB’s estimate was also revised, from 2% to 2.4%. In addition to the reconstruction of the South, the economist draws attention to the government’s continued fiscal impulse, contributing to household consumption throughout the country, and to the positive dynamics of the agricultural sector, which drives the economy mainly in the Central-West states.
Despite the still very strong activity, the economist does not see, for now, a materialization of the resumption of the Selic rate hike cycle, although he recognizes that this risk is growing. “It is a situation that deserves attention. If inflation expectations do not subside, the Central Bank will be urged to raise interest rates.”
Santander projects growth of 0.7% in the second quarter and 2.3% for the year (compared to 2% previously).
“We expect even stronger short-term dynamics, as the labor market remains robust and the floods in Rio Grande do Sul had a smaller impact on economic activity than we anticipated,” highlighted the bank’s chief economist, Ana Paula Vescovi.
