Brazil posts weaker-than-expected GDP growth

 Brazil’s economy grew in the third quarter but growth missed forecasts after Latin America’s largest economy emerged from recession in the previous quarter.

Brazil posted gross domestic product growth of 1.3 per cent in the third quarter over the second, according to government numbers released on Thursday.

EDITOR’S CHOICE
Brazil’s Pão de Açúcar to buy Casas Bahia – Dec-06.Global Insight: Brazil catches banks adept at capital flight – Nov-25.Brazil minister voices currency concerns – Nov-10.Analysis: Brazil’s real reward – Nov-08.Editorial: Fatal attraction – Oct-21.Brazil keeps economic excitement in check – Oct-25..That marked a second straight quarter of expansion after a six-month recession, but was below a median growth forecast of 2.0 per cent by 18 analysts in a Reuters poll.

The government also revised down second-quarter growth to 1.1 per cent quarter-on-quarter from 1.9 per cent.

The weaker-than-expected growth, partly dragged down by weakness in Brazil’s huge farm sector, underscores the lingering impact of the global economic crisis that has plunged much of the developed world into recession.

The weaker-than-forecast figures drove drove down yields on Brazilian interest rate futures contracts as investors pegged back their expectations on the timing of interest rate hikes by the central bank next year.

Analysts pointed to signs of strength in domestic consumption and investment as evidence that Brazil’s recovery was on firm ground. Household consumption rose 2.0 per cent on the previous quarter, while capital spending jumped 6.5 per cent.

”We expected stronger growth, but seeing that expansion came about through capital spending and consumption, we have an optimistic view for the economy,” said Andre Perfeito, an economist with Gradual Investimentos in Sao Paulo.

Brazil’s relatively rapid recovery from recession has made it a global investor darling this year, helping drive rises of 81 per cent in the stock market and 32 per cent in the currency.

Brazil’s Finance Minister Guido Mantega sought to downplay the weakness, saying the recovery appeared more slugglish because Brazil’s recession has been less severe than previously thought. He said the government was keeping its 2010 growth forecast at 5.0 per cent and saw the Brazilian currency remaining stable or declining in coming months.

The real has strengthened by a third against the US dollar this year. That has proved a concern for the government, which slapped a 2.0 per cent tax on inflows into stocks and fixed-income investments in October.

DEMAND RESILIENT, AGRICULTURE SINKS

Third-quarter GDP dropped 1.2 per cent over the same quarter in the previous year. Estimates for the year-on-year figure had ranged from a 0.5 per cent decline to growth of 0.9 per cent. Second-quarter year-on-year growth was also revised down to a contraction of 1.6 per cent from a previously-reported decline of 1.2 per cent.

”The revisions … were surprising,” said Silvio Campos Neto, chief economist at Schahin Bank. ”Now the central bank will have to wait for fourth-quarter GDP which will only come out in March. In other words, it postpones the possibility of a rate hike at the start of next year.”

The yield on the interest rate futures contract due January 2011 dropped to 10.38 per cent from 10.46 per cent. The yield on the contract due April 2010 slipped to 8.75 per cent from 8.8 per cent.

The slide in the yields suggests that investors don’t see monetary policy being tightened any time soon. On Wednesday, central bank policymakers kept the benchmark interest rate, the Selic, steady at 8.75 per cent.

While domestic demand held up, Brazil’s agriculture sector shrank 2.5 per cent over the previous quarter and a hefty 9.0 per cent over the same period last year, dragging down growth even as other parts of the economy expanded.

Brazil is one of the world’s bread baskets and the biggest exporter of beef, poultry, coffee, sugar and orange juice.

Economists had expected Brazil’s economy to grow 0.3 per cent in 2009, according to a median of 18 forecasts, which ranged from 0.4 per cent contraction to 1 per cent growth.

As Brazil’s economy began sliding last year, the government acted to contain the damage from the global downturn, helping spark the rebound. Tax breaks on cars, home appliances and construction materials stoked consumer demand.

The central bank slashed a cumulative 500 basis points off the Selic rate to boost lending and liquidity.