Brazil Monthly Economic Report

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EXECUTIVE SUMMARY

1. Government

• Fiscal scenario is concerning again
• Government continues saying it will meet the fiscal target, but market maintains its more pessimistic assessment
• Several points to monitor to see if a revision for a worse outcome is necessary

2. Economic Activity

• GDP grew 0.8% in the first quarter
• The impact of the flood in Rio Grande do Sul state will reduce growth in the second quarter
• But, the reconstruction effort will benefit growth in the following quarters
• GDP might grow 2.0% in the whole 2024

3. Monetary Policy

• Copom reduced the cutting pace to 25bps
• A final 25bps cut in June meeting to 10.25% is likely
• The Selic policy rate might end 2024 at 10.25% and 2025 at 9.25%

4. External Sector

• BRL depreciated in May
• The uncertainty about the monetary policy in the US and the increased fiscal risk explain the outcome
• But, BRL tends to appreciate when FED start cutting rates in the US