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Brazil Economic Activity May 2023

Brazil: Economic growth undershoots expectations in May; posts steepest contraction in 26 months

The Brazilian economy stumbled halfway through the second quarter: Economic activity declined a whopping 2.0% month on month in seasonally adjusted terms in May. The downturn was a deterioration from April’s 0.8% monthly expansion and the steepest contraction since March 2021. Moreover, the result undershot market expectations significantly; activity was expected to be stable in May.

The result partly reflected seasonal factors amid the end of this year’s record grain production, as well as elevated interest rates; the benchmark SELIC rate has remained at 13.75% since September 2022. That said, stronger-than-expected services growth prevented a steeper contraction, boosted by the tourism industry’s revenue soaring to BRL 36.1 billion (around USD 7.6 billion)—its highest level since 2014.

On an annual basis, economic activity growth slowed to 2.1% in May from April’s 3.4% year-on-year expansion. Consequently, the trend pointed down, with annual average growth in economic activity coming in at 3.4% in May, down from April’s 3.6% reading.

Meanwhile, retail sales posted a 1.0% seasonally adjusted month-on-month decline in May, deteriorating from April’s 0.1% contraction. Conversely, industrial output returned to growth in May and tallied a 0.3% seasonally adjusted month-on-month increase, swinging from April’s 0.6% decline.

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