Star Metro - Brazil economy picks up as shoppers spend more

The result was slightly better than analysts' forecasts of 0.7 percent in Latin America's biggest economy, whose President Luiz Inacio Lula da Silva has vowed to deliver "solid" growth.

Lula said the result was "more proof we are on the right track," in a post on X.

Brazil's GDP was up 2.5 percent compared to the first quarter of 2023, said the Brazilian Institute of Statistics (IBGE).

Independent analyst Andre Perfeito noted a 1.5 percent increase in household consumption was a key factor in the first quarter growth, with more Brazilians working after a fall in unemployment.

William Jackson, chief emerging markets economist at Capital Economics, said the pace of growth and consumer spending "will raise (even more) concerns about inflation at the central bank."

The central bank has slowly made tiny adjustments downwards of the interest rate, now at 10.5 percent, under pressure from Lula who has said high lending costs are hurting economic growth.

Brazil's benchmark interest rate is among the world's highest in real terms, after aggressive increases following the Covid-19 pandemic and Russia's invasion of Ukraine sent global prices on an upward spiral in early 2021.

- A 'temporary' boost -

The first-quarter growth was also driven by a rebound in agriculture which expanded by 11.3 percent, according to the IBGE.

However, the sector is not performing as well as in previous years and was down three percent from the first quarter of 2023.

Agricultural products with significant harvests at the start of the year -- such as soybeans, corn, tobacco and cassava -- showed a drop in estimated annual production compared to the same period last year.

IBGE analyst Rebeca Palis highlighted that the economic growth in the first quarter had been "entirely based on domestic demand."

Brazil's economy contracted 0.1 percent in the fourth quarter of 2023, after eking out growth of 0.1 percent the previous quarter.

In May, the government raised its growth projection for 2024 to 2.5 percent.

However, it has warned the estimates do not take into account the devastation caused by historic flooding in the southern state of Rio Grande do Sul, one of the country's largest economies.

Jackson said the growth rebound was "temporary... and doesn't mark the start of a strong recovery."

He said indicators pointed to a weaker second quarter, and Capital Economic estimates 2024 growth at 1.5-1.8 percent.

"The floods in Rio Grande do Sul may weigh on growth. And we doubt that the strength of agricultural production in Q1 will be sustained," Jackson said.

O.Martin--SMC