Brazil economic activity rebounds in May, cooling recession fears

BRASILIA (Reuters) - Economic activity in Brazil rose in May, a central bank indicator showed on Monday, the first increase this year and an indication that Brazil may avoid slipping back into recession.

Mannequins are seen inside a store in Sao Paulo, Brazil May 30, 2019. REUTERS/Nacho Doce

The closely watched index, a leading indicator of gross domestic product (GDP), rose 0.54% in May, rebounding sharply from an upwardly revised -0.32% in April and slightly ahead of the median forecast in a Reuters poll of economists of 0.50%.

It snapped a run of four consecutive monthly declines, a run not seen since the first half of 2016 when Brazil was mired in one of the worst recessions in its history, and was the biggest rise since June 2018.

With GDP having contracted 0.2% in the first quarter, this might offer a sign that the economy may have avoided contraction, and therefore technical recession, in the second quarter.

The data follows figures last week that showed service sector activity in Brazil, which accounts for more than 70% of the economy, stagnated in May, confounding expectations for a fall. April’s monthly growth was revised up as well.

But it is only one month. Overall, economic activity is still lower than it was for most of last year, the non-seasonally-adjusted IBC-Br index shows.

“The overall picture still shows a very moderate recovery in economic activity,” analysts at XP Investimentos wrote in a note to clients on Monday.

Alberto Ramos, head of Latin American research at Goldman Sachs in New York, notes that, according to the monthly IBC-Br series, real GDP is still 7.9% below the December 2013 peak and just 3.6% above the December 2016 cyclical trough. This makes the current recovery the weakest on record.

If the IBC-Br economic activity in June remains constant at May’s level, real GDP would decline 0.5% in the second quarter from the first, Ramos estimates.

The central bank expects second-quarter growth will be “relatively stable”, suggesting the economy will skirt recession. The central bank and government both recently cut their 22019 GDP growth forecasts to 0.8%.

Reporting by Jamie McGeever; editing by Jonathan Oatis