Economic activity of the biggest emerging market after China has unexpectedly declined in October, as the central bank of Brazil continues to raise rates.
The seasonally adjusted economic index, a proxy for gross domestic product, fell 0.26 percent in October from the prior month after growing a revised 0.26 percent in September, the central bank said today in a report posted on its website. That was below every estimate from 27 economists surveyed by Bloomberg, whose median forecast was for a 0.25 percent expansion.
The non-seasonally adjusted economic activity index fell 1.18 percent from a year ago, compared with a median estimate of a 0.30 percent drop, the central bank report said.
Brazil’s edged out of recession in the third quarter as the country is expected by economists to grow at the slowest pace in five years. Waning confidence increases the challenges for appointed Finance minister Joaquim Levy, who vowed to impose more rigorous fiscal discipline to narrow the widest budget deficit in a decade.
Economists surveyed by the central bank cut this year’s gross domestic product estimate to 0.16 from 0.18 last week, the bank said on its website today. For 2015, they see expansion of 0.69 percent, down from 0.73 percent the previous week.
In the third quater Latin America’s largest economy expanded 0.1 percent after recording a recession in the first six months of the year.
Slow growth and worsening fiscal results led Standard & Poor’s in March to cut the country’s sovereign debt rating to one level above junk.
In September, Moody’s Investors Services followed by cutting Brazil’s outlook to negative.
Inflation accelerated to 0.51 percent in November from 0.42 percent in the previous month. Annual consumer prices ended November at 6.56 percent, above the ceiling of the government-set target of 4.5 percent plus or minus two percentage points.
Economists surveyed by the central bank expect inflation to end 2014 at 6.38 percent and to finish 2015 at 6.50 percent.
Price increases have contributed to falling consumer confidence, which in November reached its lowest level in more than five years, according to the Getulio Vargas Foundation, a Brazilian research group and business school.
With inflation above target, the central bank on Dec. 3 boosted the benchmark interest rate by half a point to 11.75 percent. The bank said in the minutes from the meeting that fiscal policy will become tighter and additional rate adjustments to contain above-target inflation will probably be carried out with parsimony.
Real, Brazil's currency, has weakened 11.7 percent against the dollar in the past three months, the second-worst among major currencies tracked by Bloomberg.
