In contrast to March’s retail sales which grew more than expected, Brazil’s Central Bank indicator of economic activity out this morning fell 0.35% mom/sa in March, surprising market estimates (+0.5%).

“It was very bad. It shows that gross domestic product will have modest growth this year. The central bank will probably signal that this is a moment to push rates down,” Gradual Investimentos’ Andre Perfeito told Bloomberg.

“The industrial sector can’t seem to grow,” said Newton Rosa, chief economist at SulAmerica Investimentos, and the only economist to predict that activity contracted in March. With the interest-rate cuts “activity may get some gas in the second half, but that doesn’t necessarily mean it’s industrial activity that’s going to push it. It could continue being the consumer sector.”

“The real reached 2 per dollar because the economic outlook is getting worse,” Sidnei Nehme, a director at NGO Corretora in Sao Paulo, said by telephone. “With the crisis abroad becoming more serious, it diminishes the outlook for flows into Brazil.”

Source: Itau, Bloomberg

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