MercoPress. South Atlantic News Agency

Brasil: FGV reports economic stagnation in February

The FGV's GDP Monitor is one of the studies that serves as a thermometer of the Brazilian economy

Brazil's economy has been reported to have stagnated in February, with GDP growth at 0% compared to January, according to the Getulio Vargas Foundation's GDP Monitor. While industry and investment showed growth, declines in consumption, agriculture, and exports offset these gains.

The study by the FGV's Brazilian Institute of Economics (Ibre) released Monday estimates the behavior of the Gross Domestic Product (GDP) -a set of all goods and services produced in the country- and serves as a preview of the official data, released quarterly by the Brazilian Institute of Geography and Statistics (IBGE).

February's performance (0%) is unseasoned, i.e., variations caused by the time of year when the data was gathered were excluded. Hence, it is possible to compare different periods.

Compared to the same month in 2024, a growth of 2.7% was identified. In the 12 months to date, GDP has risen by 3.1%.

Economist Juliana Trece, coordinator of the study, pointed out that the stagnation in February compared to January was explained by the fact that growth in industry and investment was offset by retractions in consumption, agriculture, and exports. The services sector stagnated in the month.

“These results show that, despite some positive highlights, there is a loss of strength in the economy, with retractions in important components of GDP,” she said.

However, she pointed out that “despite a challenging context, with greater external uncertainty and a tendency for domestic interest rates to rise, the Brazilian economy did not shrink.”

On the external front, the main concern is the tariff war unleashed by US President Donald Trump, which mainly affects China but also provides for import tariffs against other countries.

In the case of Brazil, there will be a minimum tax of 10% on most exported items. Steel and aluminum will pay 25%. For China, the charge will exceed 100%, a measure that has been mirrored by the Chinese government.

On the domestic front, the Monetary Policy Committee (Copom) of the Brazilian Central Bank (BC) has been raising the basic interest rate (Selic) since September in an attempt to contain inflation. In addition to the hike in March, the Copom has signaled that it will raise the rate “by a smaller amount” at its May meeting. The committee meets every 45 days to decide on the rate.

In 12 months, inflation as measured by the Broad National Consumer Price Index (IPCA), released last Friday (11) by the IBGE, accumulated 5.48%, above the government's target ceiling ─ 4.5%, already counting 1.5 percentage points (p.p.) of tolerance. It was also the highest level since February 2023, when it reached 5.6%.

With higher interest rates, credit becomes more expensive, consumers tend to spend less, and entrepreneurs hold back on investments. The result is a slowdown in the economy, which is intended to put a brake on inflation.

In the period ending in February, household consumption grew by 2.7% compared to the same period in the previous year. In the quarter ending in November, the increase was 4.8%.

Gross Fixed Capital Formation (GFCF), an indicator that represents entrepreneurs' appetite for investment, rose by 8.2% in the moving quarter ending in February, losing momentum compared to the previous period. In September, October, and November 2024, the expansion had been 10%.

Exports ended February down 2.8% interannually. In November, there had been a 2.7% rise. The negative performance of exports of agricultural products and the mineral extraction industry was the main factor responsible for the downturn.

The GDP Monitor is one of the studies that serves as a thermometer of the Brazilian economy. Another survey is the Central Bank's Economic Activity Index (IBC-Br), released last Friday (11), which showed an expansion of 0.4% from January to February and 3.8% over 12 months.

The official GDP result is presented quarterly by the Brazilian Institute of Geography and Statistics (IBGE). Scheduled for May 30, the next release will bring data for the first quarter of 2025. (Source: Agencia Brasil)