Brazil: Economic activity growth loses pace in May
The economy seemingly lost further traction halfway through the second quarter: Economic activity grew 0.2% month on month in seasonally adjusted terms in May (April: +0.3% mom). May’s result undershot market expectations.
On an annual basis, economic activity grew 1.3% in May, which was well below April’s 4.3% expansion. Accordingly, the trend pointed down, with the annual average growth of economic activity coming in at 1.7% in May, down from April’s 1.8%.
Looking at sectoral data, services output flatlined month on month in seasonally adjusted terms, decelerating from April’s 0.3% increase. Despite the underwhelming result, the sector still fared better than anticipated.
Meanwhile, retail sales growth accelerated further in May, tallying a 1.2% month-on-month seasonally adjusted expansion (April: +0.9% s.a. mom). Conversely, in the same month, industrial output deteriorated further and contracted 1.5% month on month on a seasonally adjusted basis (April: -0.3% s.a. mom). More positively, in June, it rebounded and expanded 4.1%.
Taken together, economic activity data—a proxy for GDP—for April–May suggest a softer economic performance compared to Q1, which aligns with our panelists’ projection that sequential GDP growth in Q2 should have roughly halved from Q1. The deceleration will have been partly due to devastating flooding in the southern state of Rio Grande do Sul in April–May. Moreover, growth continued to be restrained by restrictive monetary policy.