Brazil Economic Activity Rises in September, Points to Solid Third Quarter Rebound

Brazil Economic Activity Rises in September, Points to Solid Third Quarter Rebound
A man holds two hundred-reais notes after Brazil's Central Bank issued them in Brasilia on Sept. 2, 2020. (Sergio Lima/AFP via Getty Images)

Economic activity in Brazil rose in September for a fifth month, a central bank survey showed on Friday, more than economists had expected, pointing to a solid recovery in the third quarter from the worst of the COVID-19 shock earlier in the year.

The central bank’s IBC-Br index, often seen as a good proxy for broader gross domestic product, rose a seasonally-adjusted 1.3 percent in September from August, above the median 1.0 percent forecast in a Reuters poll of economists.

It brought the cumulative increase over the third quarter to 9.5 percent, but still leaves activity 2.5 percent below its pre-pandemic level in February, the central bank figures show.

Economists at Citi immediately raised their third-quarter and full-year GDP growth forecasts on the back of the data. They now see Q3 GDP rising 7.3 percent, up from 6.7 percent, and revised their 2020 GDP forecast to -5.5 percent from -5.8 percent.

“Overall, the main activity indicators (industrial production, civil construction, retail sales, services survey, etc) performed better than our expectations, triggering an upward revision,” they wrote in a note on Friday.

It was the index’s fifth monthly increase in a row, but because August’s rise was revised up to 1.4 percent from 1.1 percent, September’s increase was the smallest of them all.

Compared to September last year activity was down 0.8 percent, and on an accumulated 12-month basis down 3.3 percent, both on a non-seasonally adjusted basis, the central bank said.

By this measure, Latin America’s largest economy is still 8.3 percent smaller than it was at its peak in December 2013.

Brazil’s economy is expected to register its biggest-ever annual slump this year, with the government forecasting a 4.7 percent fall. Economy Minister Paulo Guedes insists that Brazil will suffer less and will recover more quickly than many other countries due to government and central bank support.

Guedes reiterated his bullish view of the economy this week, saying it is in a “V-shaped” recovery and could grow by as much as 4 percent next year.

By Jamie McGeever