Temer Said to Expect Brazilian Recovery in Fourth Quarter

  • Administration member spoke after data showed growth in June
  • Said economic rebound could possibly begin in current quarter

Brazil’s government doesn’t expect a clear economic recovery until the final quarter of 2016, despite some early signals that the worst of the recession may be over, according to a senior member of Acting President Michel Temer’s economic team.

The economy takes some time to respond to growing optimism said the official, who asked not to be identified because the government forecasts aren’t yet public. He added that several policy measures still require congressional approval.

The comments came after investors cheered the central bank’s publication on Friday of its seasonally-adjusted economic activity index, which rose 0.23 percent in June from the previous month. It was its best performance since December 2014 and only the second expansion this year. The figure was in line with the median estimate of analysts surveyed by Bloomberg, who expected growth of 0.2 percent.

Markets have rallied in recent months on bets that Temer will succeed where his predecessor Dilma Rousseff failed in reviving growth. Analysts surveyed by the central bank have been increasing GDP estimates, forecasting a milder recession in 2016 and a more robust rebound next year. Consumer and business confidence are on the rise as well, leading to some gains in retail sales and industrial output.

But Latin America’s largest economy still faces numerous challenges. The highest benchmark interest rate among Group of 20 countries hasn’t damped inflation, while government efforts to curtail spending haven’t made a major dent in a near-record budget deficit.

Central bank chief Ilan Goldfajn also called for caution on Friday, saying at an event in Sao Paulo that policy makers still need to implement reforms to further rebuild confidence and contain inflation.

The real weakened for a second straight day on Friday after the central bank offered reverse currency swaps and newspaper Valor Economico cited Temer as saying he’s concerned about the currency’s appreciation this year. The currency pared some of its losses after the administration official told Bloomberg that the government prefers a stronger and stable real over a weaker and volatile currency.

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