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Economic activity slows amid higher interest rate setting and slumping
consumption
On 30 June, National Statistical Institute (IBGE) published nominal GDP
figures and confirmed its first quarter growth figure released in May,
which showed economic growth slowing from an annual 3.4% in the final
quarter 2002 to 2.0% in the first quarter. Data releases for the second
quarter indicate that the moderation in economic activity persisted.
According to the Economic Research Institute (FIPE, Fundação Instituto de
Pesquisas Econômicas), economic activity in São Paulo, as measured by the
monthly indicator of economic activity (IMEC, Indicador de Movimentação
Econômica), was down 3.2% in May over the same month last year, which was
a substantial drop from the previous month, when activity had fallen 1.8%.
According to seasonally adjusted data, output dropped 0.8% over April.
Furthermore, the key consumption related indicator of the IMEC,
experienced a 5.7% decline in May over the same month last year - down
from the 0.6% expansion observed in April – as real incomes and tight
credit continue to suppress heightened activity. Moreover, according to
the São Paulo Retailers Federation (Fecomércio, Federação do Comércio do
Estado de São Paulo), real retail sales declined 8.5% in May over the same
month last year, which was down from the 0.8% expansion observed in April
for the same period.
Similarly, investment appears to be experiencing a moderation in growth.
According to trade data, capital goods imports were down 30.4% in May over
the same month last year, which was up moderately from the 30.3%
contraction in April for the same period. Industrial production data show
a similar trend, as output of capital goods in industry was down 6.7% in
April over the same month last year.
Consensus Forecast participants expect economic growth to have slowed
further in the second quarter with growth moderating to 1.5% year-on-year.
However, economic activity is anticipated to accelerate moderately
throughout the year but quarterly growth rates will remain modest. As a
result, GDP is expected to rise just moderately in the full year, which
unchanged over last month’s forecast. The anticipated easing of monetary
policy next year should help bolster domestic demand and as a result
economic activity should accelerate. |
