Brazil: Economic activity in May falls the most in five months
Latest reading: The Brazilian economy stumbled halfway through the second quarter: Economic activity—a proxy for GDP—slid 0.7% month on month in seasonally adjusted terms in May, deteriorating from a downwardly revised 0.1% rise in April. The contraction was the worst in five months. May’s downturn was notably sharper than markets had anticipated—ending a four-month streak of overshooting expectations.
Looking at the details of the release, the downturn was largely due to the agricultural sector declining at the sharpest pace in two years. Moreover, activity in the services sector—which accounts for roughly 60% of GDP—flatlined in May, slowing from the mild expansion seen in the prior month. Meanwhile, the industrial sector fell at a softer clip.
On an annual basis, economic activity rose at a faster rate of 3.2% in May (April: +2.4% yoy). Accordingly, the trend improved slightly, with the annual average growth of economic activity coming in at 4.0%, up from April’s 3.9% reading.
Outlook: April–May data bears our Consensus view that sequential GDP growth will have slowed to less than a fourth of Q1’s rate in Q2: Economic activity grew 0.3% in April–May, down from Q1’s 1.4% rise. Looking further ahead, our panelists see quarter-on-quarter GDP growth slowing to a crawl in Q3 before stabilizing in Q4, at which point the economy will feel the full impact of the Central Bank’s aggressive tightening cycle.
Overall in 2025, our Consensus is for GDP growth to moderate to a five-year low; despite a robust labor market, private consumption growth should soften due to the higher living costs caused by inflation remaining entrenched above the Central Bank’s 1.5–4.5% target.