May 15, 2019 / 12:19 PM / a year ago

UPDATE 1-Brazil economic activity shrinks in March, supporting view of Q1 GDP contraction

(Adds detail, context)

By Jamie McGeever

BRASILIA, May 15 (Reuters) - Brazilian economic activity fell in March, a central bank indicator showed on Wednesday, adding weight to the view flagged by policymakers earlier this week that the economy likely contracted in the first quarter.

The central bank’s IBC-BR economic activity index, a leading indicator of gross domestic product (GDP), fell 0.28% in March from February, more than the median 0.2% decline predicted in a Reuters poll of economists.

In the first three months of the year, activity fell 0.68%.

The IBC-BR index released on Wednesday follows a string of weak economic indicators for March, including declines in industrial production, retail sales and jobs.

On Tuesday, minutes from the central bank’s May 7-8 policy meeting showed that policymakers believed there was a “relevant probability” that GDP contracted in the first quarter and that this weakness will likely be felt in subsequent quarters.

Also on Tuesday, Economy Minister Paulo Guedes said the government will cut its 2019 growth forecast to 1.5% from 2.2%, bringing it more in line with private sector forecasters who think 2019 GDP growth will struggle to improve much on the 1.1% registered in each of the previous two years.

The IBC-BR economy activity index fell 2.52% in March compared with the same month a year ago, and rose 0.23% in the January-March period on a year-on-year basis, the central bank said. In the 12 months to March, it rose 1.05%.

Government and central bank policymakers say approval of the pension reform bill, which aims to generate savings of 1.237 trillion reais ($314 billion) over the next decade, is key to reviving the economy. (Reporting by Jamie McGeever; Editing by Bernadette Baum)

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