Brazil: Surpassing Economic Expectations

• The Brazilian economy kicked off the third quarter with a stronger-than-expected pace, bolstering recent upward revisions in the country's GDP growth forecast for 2023.
• The Economic Activity Index (IBC-Br), a key predictor of gross domestic product, registered seasonally adjusted growth of 0.44% in July from June, surpassing the median forecast of a 0.3% expansion in a Reuters poll of economists.
• According to the central bank, the IBC-Br was up 0.66% on a non-seasonally adjusted basis from July 2022 and marked a rise of 3.12% in the 12 months.
• The data has revealed a significantly more resilient economy since the beginning of the year, and this trend has been sustained in recent months, said Rafael Perez, an economist at Suno Research. However, Perez said he expected greater stability in economic activity by the end of this year, citing the cumulative effects of the central bank's restrictive monetary policy.
• The solid expansion in monthly terms reinforces the view that the BCB (Banco Central do Brasil) will cut the benchmark Selic rate by 50 basis points (bps) at its meeting on September 20. The central bank initiated an easing cycle last month, lowering its key interest rate to 13.25% after keeping it unchanged for nearly a year to combat high inflation in South America's largest economy.
• Given these factors, Fitch has raised its forecast for growth this year from around 1.0% at the beginning of the year to 3.0% currently, putting it above Bloomberg consensus of 2.5%

(Sources: Fitch Solutions & Reuters)