Brazil’s economy entered the fourth quarter with a surprise contraction in October, adding to signs that activity is cooling under tight monetary policy.
On Monday, data from the Central Bank revealed that the Economic Activity Index (IBC-Br), a reference indicator for gross domestic product (GDP), decreased 0.2% in October compared to September, in the seasonally adjusted series.
It was the index’s second consecutive monthly decline. The IBC-Br retreated 0.19% in September, which the Central Bank republished from an earlier figure of -0.20%.
Combined, the two contractions imply a slowdown in the momentum at the start of Q4.
According to local media outlet InfoMoney, economists did not anticipate this outcome in October.
A Reuters poll predicted a 0.10% monthly increase, highlighting the disparity between forecasts and recent official figures.
Sector breakdown reveals uneven performance
A closer examination of the Central Bank’s numbers reveals that October’s performance differed greatly by sector.
Agriculture was the only sector that saw growth, at 3.1% from September. In contrast, industrial activity fell by 0.7% and services fell by 0.2% during the same time.
When agriculture is omitted, the weakness becomes more apparent.
The IBC-Br index, excluding the agricultural sector, declined 0.3% in October, highlighting the broad weakness in industry and services, which account for the majority of Brazil’s economic activity.
These results support the perception that the economy is suffering headwinds, even as other parts demonstrate resilience.
Contrast with official statistics
The Central Bank’s activity index contrasts with data issued by Brazil’s official statistics office, IBGE, which showed a more mixed picture for the month.
According to IBGE, retail sales were the top performer in October. Sales increased 0.5% from September, defying forecasts and reaching a seven-month high.
Industrial production rose by 0.1% in the month, albeit the increase was less than expected. Meanwhile, the volume of services rose by 0.3%, slightly above estimates.
These findings point to pockets of strength that are not completely represented in the larger activity index.
Year-over-year growth remains positive
Despite monthly dips, the IBC-Br continues to expand when compared to the same time a year ago.
According to non-seasonally adjusted data, the index was 0.4% higher in October than in the same month last year. Over 12 months, the cumulative gain was 2.5%.
These longer-term indicators show that, while short-term momentum has deteriorated, total activity is still above year-ago levels.
GDP and monetary policy context
Brazil’s GDP increased by only 0.1% in the third quarter, the slowest growth since a 0.1% decline in the fourth quarter of 2024. This quieter GDP report aligns with the recent easing in the IBC-Br.
In a meeting held last week, the Central Bank opted to maintain the benchmark Selic interest rate steady at 15% per year.
Policymakers did not indicate when a phase of interest rate reductions could start, and instead repeated that keeping rates here for an extended period is the proper course to return inflation to target.
According to market expectations in the Central Bank’s Focus survey released on Monday, GDP would increase 2.25% in 2025 and decelerate to 1.80% in 2026.
About the IBC-BR
The IBC-Br is made up of proxies that represent volume indices for agricultural, industrial, and service sector production, as well as a volume index for production taxes.
While not an official GDP statistic, it is commonly regarded as an accurate reflection of Brazil’s economic success.
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