Key facts
- Brazil's economic activity fell 0.2% in July from the previous month.
- Economists had expected a 0.1% contraction.
- July marked the second consecutive month of contraction.
- Brazil's benchmark interest rate is currently 14%.
- The agricultural sector was the main drag in July, declining 1.2%.
- Industry fell 0.4%, while services were flat.
- On a year-on-year basis, the economic activity index was up 1.1% in July.
Brazil's economic activity unexpectedly contracted by 0.2% in July from the previous month, missing economists' expectations for a 0.1% drop, according to a central bank index. This marks the second consecutive month of contraction, following a revised 0.9% decline in June, as elevated borrowing costs continue to weigh on the Latin American economy.
Policymakers at the central bank were set to announce their next interest rate decision later on Wednesday. Economists in a Reuters poll forecast another 25 basis point cut, bringing the benchmark rate down to 13.75% from its current 14%. However, real rates in Brazil remain among the highest globally.
"The growth data increasingly argue for lower rates; the inflation backdrop argues for getting there gradually," said Andres Abadia, Pantheon Macroeconomics' chief Latin America economist.
The central bank's IBC-Br index, a proxy for gross domestic product, showed that the agricultural sector was the main drag in July, posting a 1.2% decline. Industry fell 0.4%, while services, the backbone of Brazil's economy, were flat. On a year-on-year basis, the index was up 1.1% in July.