June GDP growth was 0.75%

Compared to May, Brazil’s GDP rose 0.75% in June. This is growth as measured by the Central Bank’s Economic Activity Index (“IBC-Br), with seasonal adjustments, that was just announced this morning (August 17). The IBC-Br is considered one of the more reliable readings of economic activity. For the sake of comparison, in June 2011, the IBC-Br was up 0.99%, without adjustments.

However, in spite of the positive month-to-month growth, quarterly numbers show a slower expansion of economic activity. Growth in the first quarter of  this year, compared to the last quarter of 2011 was 0.63%. But, growth in the second quarter, compared to the first quarter, was 0.38%. Even so, growth in the second quarter was up 0.68%, without adjustments, compared to the second quarter of 2011. And growth in the first half of this year, as measured by the IBC-Br, without adjustments, was 0.87%, compared to the first half of 2011. For the twelve-month period ending in June, the IBC-Br registered GDP growth of 1.2%, without adjustments.

The IBC-Br metric is used both to evaluate and anticipate the evolution of Brazilian economic activity. The index incorporates information on the level of activity in three economic sectors: industry, commerce and services, and farming. As such it enables the Central Bank and its Monetary Policy Committee (“Copom”) to operate with a deeper understanding of the country’s economic situation as they do their work. One of their tasks is to set Brazil’s benchmark interest rate, the Selic.

Copom has aggressively reduced the Selic over the last twelve months in order to stimulate economic expansion in the face of the international crisis and what is now a worldwide slowdown. At the moment, the Selic is at a historical low of 8%.

At the same time the government has rolled out other measures to stimulate the economy. This week a program for highway and railroad concessions was announced. Yesterday (August 16), the government revealed that credit operation limits for seventeen states will be raised R$42.2 billion.

This year the government has also reduced taxes to boost the sale of home appliances, furniture and automobiles. Government procurement procedures were streamlined and there was a reduction in the Long-Term Interest Rate (“TJLP”) that the Brazilian Development Bank (“BNDES”) uses for its loans (the rate went from 6% to 5.5%).

This June the Central Bank revised its GDP growth forecast for 2012 downward from 3.5% to 2.5%. Meanwhile, financial institutions are estimating annual growth of 1.81%.