Brazil GDP forecast and service data, FOMC minutes in U.S.: what to monitor this week

RIO DE JANEIRO, BRAZIL – After poor industry and retail data last week, the Brazilian Institute of Geography and Statistics (IBGE) will release the August service volume on Thursday, October 14.

The following day, the Central Bank will release the monthly forecast for the Gross Domestic Product (GDP), also for August, or the IBC-Br.

“We expect the volume of the services sector to rise by 0.6% over the previous month, with a 7.6% month-on-month increase in the component of services offered to families. For the Central Bank’s economic activity index, we expect a 0.3% decline from the previous month. On the margin, the normalization of the services sector has been the only driver of growth in Brazil,” points out Itaú.

Bradesco stresses that new downward surprises may confirm a weaker than expected third quarter, although still higher than the second.

As for inflation, the October IGP-10 will be released on Friday. Itaú projects a drop of 0.27% for the month, bringing the annual rate to 22.59% (from 26.84% in September). “The main factor should still be iron ore deflation, as well as some relief in agricultural prices, driven mainly by corn, soybeans and derivatives. On the other hand, consumer prices should remain under pressure, mainly due to higher electricity and fuel tariffs,” Itaú points out.

On the political front, economists say that Tuesday’s national holiday should slow down the week’s activities in Brasilia. However, after federal deputy Hugo Motta on Thursday submitted his opinion on the Proposed Constitutional Amendment of Court-ordered Debt (PEC 23/2021), debates on this front will remain in focus.

In addition, discussions related to tax reform in the Senate should also be closely monitored, Itaú points out, which also believes that Congress is likely to continue debates on bills aimed at reducing fuel prices. In particular, a reduction in regional ICMS (state sales tax) on fuel is being considered in the Chamber of Deputies.

Meanwhile abroad, attention will be focused on the release of September inflation data in the United States and China on Wednesday.

“While the pace of price increases remains contained in the Chinese economy, in the U.S. consumer inflation should remain above 5% in the past 12 months,” Bradesco notes. Also in the United States, the retail sales data for September will be released on Thursday.

Before that, on Wednesday, the minutes of the September FOMC (Federal Open Market Committee) meeting will be released.

“We expect the minutes to show that the authorities were ready to announce the gradual reduction of stimulus with bond purchases (the so-called tapering) in November. The inflation debates should continue to focus on upside risks, since the projections for inflation were raised,” Credit Suisse points out.