Economic activity in Brazil fell sharply in April from March, worse than already negative market estimates and showing still more evidence the once-booming economy is heading toward a recession. The Brazilian central bank's IBC-Br economic activity index , a gauge of farming, industry and services activity, fell 0.84 percent, more than double market expectations for a drop of 0.4 percent, according to a Reuters poll.
High inflation and dwindling confidence have dragged down consumption, until recently the main engine of growth in Latin America's largest economy. "This is another data point confirming the weakness of growth in Brazil and supports our expectation for a 0.7 percent quarter versus quarter contraction in real GDP during the second quarter," Barclays' economist Bruno Rovai said in a note to clients.
Rovai said the drop in the index has totalled 2.2 percent so far this year. A shrinking economy and inflation running at a more than 11-year high have raised popular discontent with President Dilma Rousseff, who has adopted more orthodox policies to regain the confidence of investors. Most economists expect activity to continue to falter as the central bank is poised to further raise interest rates to battle inflation while the government cuts spending to put its fiscal accounts back in order. The Brazilian economy is expected to contract 1.35 percent this year, according to a central bank poll of economists released on Monday, its deepest recession in 25 years.