Brazil’s economic activity moderated for the second consecutive month in August 2021, according to the CEIC Leading Indicator, which anticipates turning points of the business cycle.

The non-smoothed indicator fell to 96.6 in August from 98.1 in July, thus maintaining a level below the threshold of 100. This development shows that economic activity is slowing down despite the decrease in COVID-19 infections across the country since late July.

Some key variables help to explain the recent performance of the CEIC Leading Indicator. The equity market index Ibovespa fell to 118,781 in August from 121,801 in the end of July. This marks the second consecutive month of decline and a total loss of 6.3% over the last two months and can be attributed to uncertainties about fuel and electricity prices in the country, and lower international prices of iron ores. Confidence in manufacturing also dropped for the first time since April 2021, falling by 1.4 pp to 7%, which can be explained with the global shortage of parts and components in the manufacturing sector and with inflationary pressures. On the other hand, confidence in the booming construction industry seems to have improved as the expectation to purchase inputs index regained most of its losses in August, jumping to 55.9 from 53.8 in the previous month. The consumer inflation expectation indicator rose for the seventh month in a row to its highest value since July 2017 – 6.9 - as Brazil is seeing an increase in prices among almost all consumer goods groups.

The smoothed CEIC Leading Indicator suggests that Brazil’s last business cycle peak happened in January 2021 and the country has been in a downturn phase ever since. It dropped to 97.5 in August and is now firmly below the long-term trend of 100, for a third month in a row. This performance was confirmed by the 0.1% q/q contraction of GDP in Q2 2021, despite a significant increase on annual basis due to the low base effect from 2020.

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