Brazil’s Economy Outshines Forecasts Despite Natural Disasters

Brazil’s economy demonstrated resilience in the second quarter, with a notable rise in GDP by 1.4%. This increase was driven by robust service and industry sectors, despite the devastating floods in Rio Grande do Sul. The central bank is now considering a potential interest rate hike as the economy outperforms expectations.

Brazil's economy demonstrated resilience in the second quarter, surprising experts with a 1.4% GDP rise. The strength of the services and industry sectors successfully countered the negative impacts of deadly floods in a southern state, driving expectations for a robust full-year performance.

Economic indicators surpassed predictions, with quarter-on-quarter growth topping the Reuters poll forecast of 0.9% and year-on-year growth reaching 3.3%, well above the projected 2.7%. This stronger-than-expected data has increased the likelihood of the central bank implementing a 50 basis-point interest rate hike at its September policy meeting.

Industrial output rose by 1.8%, services by 1.0%, while the agricultural sector saw a 2.3% decline. Fixed business investment grew 2.1% and household spending by 1.3%, benefiting from an improved labor market and credit conditions. Federal aid measures post-floods mitigated expected economic losses, bolstering overall growth. Finance Minister Fernando Haddad announced potential annual growth rates exceeding the initial 2.5% forecast.

(With inputs from agencies.)