Brazil's economic activity index beats forecast with 1.2% growth in July

© Reuters. FILE PHOTO: Economy Minister Paulo Guedes speaks during the launch ceremony of a government panel to monitor investments, in Brasilia, Brazil, May 9, 2022. REUTERS/Adriano Machado

BRASILIA (Reuters) - Economic activity in Brazil rose much higher than expected in July, a central bank index showed on Thursday, reinforcing forecasts for a more robust expansion this year, driven by the services sector.

The IBC-Br economic activity index, a leading indicator of gross domestic product, grew a seasonally adjusted 1.17% from June, compared with the median forecast in a Reuters poll of economists for a 0.3% expansion.

Economic data for July showed service activity, which accounts for around 70% of the Brazilian economy, beating market growth expectations, in a strong recovery after the blow from the pandemic.

Industrial production also grew, although less than expected, while retail sales fell for the third month in a row.

Solange Srour, chief economist at Credit Suisse in Brazil, said the result confirms robust dynamics for 2022 economic indicators, helped by the government’s fiscal measures ahead of the October elections and an increase in social mobility.

"For the coming months, we expect a maintenance of the activity indicators owing to both the decline in the prices of essential goods and higher government expenditures, despite the lagged effects of the country’s monetary policy," she wrote in a note to clients, predicting a 2.9% growth for the economy this year.

The IBC-Br index was up 3.87% on a non-seasonally adjusted basis from July 2021, and rose 2.09% in the 12 months, the central bank said.

Economy Minister Paulo Guedes has argued that the services sector, falling unemployment and higher private investment will help to boost GDP close to 3% this year.

The economy ministry's official estimate for 2022 expansion was improved on Thursday to 2.7% from the 2% forecast in July. [nL1N30M0YK]