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Brazil’s Monthly Activity Indicator: How Positive?
- The Brazilian central bank’s seasonally-adjusted monthly activity indicator (which tracks real GDP rather closely) rose 0.84 M/M during April, slightly above expectations, while posting a non-seasonally adjusted annual gain of 7.3% Y/Y. This is a good report. However, it only shows one side of the crosscurrents that are shaping the situation of the Brazilian economy.[private]
- The question, looking forward, is whether the apparent slowing of consumption will impede the industrial recovery (and related capital spending) at a time when external sources of demand remain weak, or—the alternative, better scenario—whether industry’s expansion, and with it higher industrial-labor income, will hold up and infuse consumption with renewed energy.
- From a practical standpoint, today’s release will be viewed by policymakers as validation for their tighter-money-modestly easier fiscal policy, as it suggests a faster pace of real GDP growth even after the poor retail sales result of yesterday pointed to the danger area of the outlook.