Economy stabilizes in April, but signs are of traction throughout the year, evaluates BofA

A Bank of America indicator for Brazilian economic activity was “relatively stable” in April, after ending a streak of 11 consecutive declines in March, and the momentum of the economy seems to gain traction, which supports upward slopes in forecasts for activity in 2022

The coincident indicator of activity calculated by BofA dropped to -0.46 point in April, against -0.32 point in March (data revised from the initially released reading of -0.41 point).

The bank’s tracker aims to help better assess the underlying growth rate of the economy and anticipate inflection points in the data. The indicator has been in negative territory since September 2021, which still suggests that activity remains “modest”.

However, BofA points to an improvement in the reading of the indicator by the three-month moving average, which increased from -0.52 point in March to -0.44 point in April, indicating that economic activity has gained momentum and with expectations that it will continue to get stronger.

The financial institution hopes that the jump in commodity prices –which has benefited the Brazilian economy– resulting from the conflicts between Russia and Ukraine will result in triggers for domestic growth.

BofA forecasts an increase of 0.5% in Gross Domestic Product (GDP) in 2022 and 0.3% in the first quarter over the previous three months (an increase of 0.6% compared to the same quarter of 2021).

According to the bank, the continuity of the cycle of monetary tightening by the Central Bank and political tensions that should increase with the approach of the elections in October may have compensations.

“The external impetus due to the improvement in the Brazilian terms of trade and increased fiscal stimulus from government tax cuts and higher spending should positively affect private income, potentially dampening the loss of purchasing power due to high inflation“, said the BofA in this week’s report.