Weekly Report 115

First-quarter GDP grew 1.4% QoQ, in line with our projection, indicating that the economy’s slowdown trajectory should be milder. Overall, there was more moderate growth in the more cyclical openings, but excluding agriculture, there was an increase of 0.5% QoQ. This dynamic reflects the resilience of the labor market, whose data came back strong in April. Therefore, we revised our growth expectation for 2025 from 1.9% to 2.3%. For 2026, we expect growth of 1.8%.

In this sense, we also expect a worse current account deficit, taking into account the Central Bank’s actual results up to April and the MDIC’s trade balance previews. In April, the current account deficit was US$1.3 billion, corresponding to -3.2% of GDP in 12 months. The goods balance recorded a surplus of US$7.4 billion, but imports remain quite robust. Despite the drop in prices, the volume of imports remained firm, which has kept import values ​​high. Therefore, we also revised our expectation for the goods balance to US$58.1 billion in 2025. This means that the current account deficit should close the year at 3.1% of GDP.

Despite this, consumer inflation brought a more constructive outlook in the May preview, with a widespread bearish surprise in the underlying measures. The IPCA-15 for May recorded an increase of 0.36% month/month, against expectations of 0.43%. Industrial goods performed better in terms of composition and, within services, airfare deflation was accompanied by more moderate underlying openings. The core average, on the other hand, remains under pressure, but this data reinforces our projection that the Central Bank should keep interest rates unchanged.

Finally, the fiscal scenario remained in focus this week, still due to the developments of the decision to increase the IOF, but also due to statistical releases. The news was permeated by speculation about alternatives to withdrawing the IOF increase, after the government’s partial retreat. For now, the most likely option is that the measure will be maintained in 2025, but that there will be negotiations for 2026. On the other hand, the primary results of the central government and the consolidated public sector recorded 0.0% of GDP, with an improvement in revenues at the margin. However, concerns revolve around the second half of the year, when new payments of court orders will be made.