Fri Mar 14, 2014 9:01am

(Reuters) – Economic activity in Brazil grew more than expected in January as strong retail sales offset most of the prior month’s sharp downturn, the central bank said on Friday.

The Brazilian central bank’s IBC-Br economic activity index rose 1.26 percent in January from December in seasonally adjusted terms, above market forecasts and nearly enough to offset a 1.40 percent drop in December.

Still, the index, a rough proxy for gross domestic product, continued to point to subpar growth. It rose a non-seasonally adjusted 0.93 percent over the same month a year ago.

Brazil’s economy has struggled with weak growth and high inflation since 2011 despite countless attempts by the government of President Dilma Rousseff to boost activity with stimulus measures. The country’s economy grew just 2.3 percent last year and is expected to slow in 2014, according to private estimates.

The partial recovery in economic activity in January follows a surprise increase in retail sales, which defied expectations for a drop as unusually hot weather sent families buying air conditioners and beverages.

Nevertheless, the recent string of positive news about Brazil’s economy, which also included a faster-than-expected rebound in industrial output in January, has not prompted economists to change their outlook for soft growth this year.

“We see this better growth movement in January as a partial bounce back from a very depressed December and not a new upward trend. But it does dampen risks that the economy was stalling or moving into a recession,” Barclays economists Bruno Rovai and Marcelo Salomon wrote in a client note.

“To be sure, February should not be so bright.”

The IBC-Br index, a gauge of activity in the farming, industrial and services sectors, has proven to be an imperfect  barometer of official GDP data compiled by statistics agency IBGE, which provides a broader reading of economic activity.

The index pointed to a technical recession in the second half of 2013, whereas official GDP figures showed a surprise rebound in economic output in the final months of last year .

The median estimate in a Reuters survey of 26 analysts was for a rise of 0.7 percent in the IBC-Br index from December.