Economic Activity is Still Weak

BRAZIL ECONOMICS - Report 09 Jan 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

In our last Quarterly Outlook we projected a slow recovery of economic activity starting in the second quarter of 2017. Despite the slight improvement in some indicators, the most recent data still show signs of contraction of both household consumption and gross fixed capital formation. GDP probably contracted in the fourth quarter of 2016, and the likelihood is high that it will do so again in the first quarter this year. The monetary easing – which should be more intense as of next Wednesday – will stimulate private domestic demand somewhat, but due to the long lags for monetary policy to operate and the continued obstruction of the credit channel, its effect on economic activity will only start to appear, very tentatively, in the second half of 2017.

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