Higher interest rates may have had an impact on GDP, but not as severely as Haddad attributed

Brazil’s income fell 2% in May compared to April, he noted Central bank economic activity index, IBC-Br. But the Minister of Finance, Fernando Haddadseems to have forced the diagnosis.

Just for those unfamiliar with these acronyms, IBC-Br is a measure that defines it central bank behavior that expects gross domestic product. This prediction is welcome because GDP itself is only measured in each calendar quarter and comes out only two months after the end of that quarter. The central bank forecast comes every month and shows a picture of what happened 45 days ago.

The fall of the IBC-Br in May surprised anyone who dedicates themselves to forecasting economic activity. But Minister Haddad’s assessment cannot be accepted The limiting factor for this decline was interest rates Excessively high, which would have brought the economy to a standstill.

Regarding the month of December, the economy grew by 1.69%. And in the quarter ending in May, during the same period in 2022, it grew 3.45% — both in the seasonally adjusted series. Nothing indicates that the figures for the full year of 2023 will have to be revised downward. The economy should advance between 2.0% and 2.5%.

Higher interest rates may have prevented a better performance, but it didn’t have all the power Haddad credits. So much so that the figures for the first quarter of the year, both from the National Accounts (PIB) and from the IBC-Br, were very good, however, the interest at 13.75% per annum has already been there since August 2022.

Another indicator that undermines Haddad’s interpretation is credit development, which remains positive, despite the rise in interest rates. In the 12 months through May, the total credit balance (earmarked and allocated) grew 10.4% and 1.2% in the moving quarter ending in May.

The factor that explains most of the reasons for the decline of IBC-Br in May is simply a seasonal factor. It has to do with cropping behavior which was exceptional in the first quarter. Agriculture grew by 21.6% compared to the previous quarter and was the reason for the government’s big celebration. In the central, western, southeastern and southern regions, soybean crops are concentrated in the first quarter of each year and production figures are increasing, with strong yield gains and growth in annual output. Off-season corn, coffee, and sugarcane are left for later.

Neither the minister nor the average Brazilian need lose any sleep over this disappointing IBC-Br. And this is not even because interest rates will start to fall in August.