High inflation and dwindling confidence have dragged down consumption, until recently the main engine of growth in Latin America’s largest economy.
“This is another data point confirming the weakness of growth in Brazil and supports our expectation for a 0.7% quarter versus quarter contraction in real GDP during the second quarter,” Barclays’ economist Bruno Rovai said in a note to clients. Rovai said the drop in the index has totaled 2.2% so far this year.
A shrinking economy and inflation running at a more than 11-year high have raised popular discontent with President Dilma Rousseff, who has adopted more orthodox policies to regain the confidence of investors.
Most economists expect activity to continue to slide as the central bank is poised to further raise interest rates to battle inflation while the government cuts spending to put its fiscal accounts back in order.
The Brazilian economy is expected to contract 1.35% this year, according to a central bank poll of economists released on Monday, its deepest recession in 25 years.