Activity in Brazil falls more than expected due to worsening crisis

The central bank’s economic activity index, a benchmark for gross domestic product, fell 0.55% from the previous month, which compares with the median estimate of analysts polled by Bloomberg for a 0.3% decline. Compared to the same month of the previous year, activity increased by 1.65%, according to data published on Friday.

The October figure was revised from a slight fall of 0.05% to a monthly contraction of 0.28%, according to the monetary authority.

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Latin America’s largest economy is running out of steam amid the hawkish stance of policymakers. Credit flows are slowing down after an aggressive tightening campaign that raised borrowing costs to 13.75%. However, annual inflation reached 5.79% in December, above the monetary authority’s target range for the second consecutive year, and cost of living expectations are rising.

The Brazilian industrial sector contracted 0.1% in November, while retail trade fell 0.6%, according to other statements released this month by the Brazilian Institute of Geography and Statistics (IBGE). The volume of the services sector remained unchanged during the period.

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Looking ahead, Brazil’s congress has given President Luiz Inácio Lula da Silva the green light to spend an additional 168 billion reais ($32.3 billion) for this year, including giving money to the poor. On Thursday, Finance Minister Fernando Haddad unveiled a plan to at least halve the primary fiscal deficit, which he does not consider interest payments, to between 0.5% and 1% of gross domestic product.

Analysts surveyed by the central bank expect GDP to expand by just 0.78% this year after growth close to 3% in 2022. IBGE will publish official figures for the full year 2022 on March 2.