Brazil’s economy, as measured by the central bank’s IBC-Br activity index, registered a 1.3% increase in the first quarter compared with the previous three months, according to data released on Monday. The quarterly gain follows a sharper contraction in March that left monthly activity below expectations.
The IBC-Br fell 0.7% in March from February on a seasonally adjusted basis, compared with a 0.2% drop expected in a poll. The central bank reported declines across every sector it tracks for the month, with services - identified as the primary driver of Brazil’s economy - contracting 0.8% versus February.
On an unadjusted basis, the IBC-Br rose 1.8% in the 12 months through March, and the index increased 3.1% from a year earlier. These year-over-year readings show expansion measured over different conventions reported alongside the monthly and quarterly figures.
The data underlines signs of a cooling economy even as the central bank continues an easing cycle. Policymakers have reduced interest rates by 25 basis points at each of their last two meetings, lowering the benchmark Selic rate to 14.50% as they pursue the goal of guiding inflation toward a 3% target.
At the same time, annual inflation accelerated to 4.39% in April. The central bank and market watchers pointed to renewed inflationary pressures, in part driven by higher energy prices linked to the U.S.-Israel conflict with Iran, which have complicated the outlook for monetary policy.
Implications and market focus
- Services activity weakening is a notable drag on near-term growth, given its role as the main component of the economy.
- The divergence between recent easing at the central bank and rising inflation readings creates policy uncertainty for fixed-income and currency markets.
- Energy price pressures are an inflationary risk that may affect broader price dynamics and households' real purchasing power.
Observers will watch subsequent monthly readings for signs that the March contraction was transitory or the start of a more persistent slowdown. For now, the IBC-Br’s quarterly rise sits alongside monthly volatility and above-target inflation, presenting a mixed picture for policymakers and markets.