Brazil Economic Outlook
The economy likely posted a marginal quarter-on-quarter decline in Q3, following a surprisingly strong Q2 expansion that was driven in part by a bumper soybean harvest. Economic activity contracted 0.8% month on month in August (July: +0.4% s.a. mom). Moreover, both the services and the manufacturing PMIs were in contractionary territory on average in Q3. Meanwhile, monthly retail sales expanded marginally in July-August: Average inflation was higher in Q3 than in Q2, which limited the support lent to household spending from a falling unemployment rate, lower interest rates and fiscal stimulus—including higher Bolsa Família payments. In addition, the economy is expected to post another sequential decline in Q4, led by a slowdown in the all-important services sector.
In September, headline inflation undershot market expectations but still rose to a seven-month high of 5.2% (August: 4.6%), markedly above the 3.25% target of the Central Bank of Brazil (BCB) for 2023; conversely, core inflation inched down to 6.0% (August: 6.1%). In 2024, inflation will slow from 2023 but remain above the 3.00% target for the year, partially on interest rate cuts.