March 18, 2019 / 12:40 PM / 9 months ago

UPDATE 1-Brazil's economic activity falls more than expected in January

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By Jamie McGeever

BRASILIA, March 18 (Reuters) - Brazilian economic activity fell sharply in January, a central bank indicator showed on Monday, the latest evidence that the economy’s sluggish momentum late last year has carried into 2019 and may even be slowing further.

The central bank’s IBC-BR economic activity index, seen as a good indicator of broader gross domestic product, fell 0.41 percent in January from December, compared to the median forecast for a 0.10 percent fall in a Reuters poll of economists.

That was the biggest monthly fall since May last year and followed weaker-than-expected readings of industrial production, service sector activity and unemployment, all of which point to an economy struggling to gain traction.

It comes two days before the central bank’s interest rate-setting committee, known as ‘Copom,’ delivers its latest policy decision, the first under new central bank chief Roberto Campos Neto.

“This confirms the economy’s weak performance and shows a deceleration in the recovery,” said Jose Francisco de Lima, chief economist at Banco Fator in Sao Paulo.

“It’s a very important signal and will stimulate debate with respect to an additional cut in the central bank’s base rate of interest,” he said.

The bank’s benchmark Selic interest rate is widely expected to be held at a record low 6.50 percent this week and for the foreseeable future. But more weak data would increase the pressure on Copom to lower it.

Brazilian economic growth ground to a virtual standstill in the fourth quarter of last year, prompting several economists to cut their 2019 forecasts. The government hopes pension reform will revive the economy, but its proposals will likely be diluted in Congress and may not be approved for several months. (Reporting by Jamie McGeever Editing by Paul Simao)

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