Bloomberg — Brazil and Mexico surprised investors with stronger-than-expected growth in data published Friday, indicating Latin America’s largest economies are holding up amid high interest rates and fast inflation.
Brazil’s economic activity surged 3.3% on the month in February, according to the central bank’s proxy for gross domestic product, roughly three times the 1.05% rise seen by analysts in a Bloomberg survey. The Mexican economy grew 1.1% in the first quarter from the previous three months, above the 0.8% median survey forecast, preliminary data showed. On an annual basis, Mexico expanded 3.9%, faster than all but one estimate in the economists’ survey.
The growth figures caught investors by surprise as central bankers in both countries keep monetary policy tight to smother above-target inflation. Brazil’s new government under President Luiz Inacio Lula da Silva is working to revamp credit flows, while Mexico has gotten a boost from continued demand in the US. Put together, the reports will give some pause to analysts who have warned that economic contractions are coming.
“Major developed markets have been surprisingly resilient so far this year, which may be helping to support exports,” said William Jackson, chief emerging markets economist at Capital Economics. “Wage growth in Mexico and Brazil has been pretty strong. And in Brazil’s case, the agricultural sector seems to be rebounding.”
Still, “central banks may be a bit concerned though,” Jackson said. “Stronger growth suggests that core inflation could remain higher for longer.”
Both economies have hiked interest rates aggressively to tame post-pandemic inflation, with Brazil’s borrowing costs at 13.75% and Mexico’s at 11.25%, among the highest rates within the Group of 20 countries.
While the Brazil central bank report does not provide a detailed breakdown, previous data from the national statistics institute showed that services jumped by 1.1% during the month in February, though retail slipped by 0.1%.
Meanwhile, Mexico’s economy has posted six straight quarters of growth, the longest run under President Andres Manuel Lopez Obrador. The expansion was supported by the services sector, which grew 4.4% annually in the first quarter, while manufacturing rose 2.7% and the agriculture sector 2.4%.
Goldman Sachs Group Inc. raised its forecast for Mexico’s 2023 GDP growth forecast to 2.1% from 1.8% after the data, according to a note by chief Latin America economist Alberto Ramos.
“In Mexico, we’ve seen advances from everything that has to do with nearshoring,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. “We’ve seen a sustained momentum in sectors that were lagging, and, in the case of Brazil, in the agriculture sector, since there was a good harvest.”
--With assistance from Leda Alvim, Maria Eloisa Capurro and Carolina Gonzalez
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