Brazil’s economy seen easing further in second quarter

Brazil’s economic growth probably slowed again in the second quarter, which is welcome news for inflation, but the growing clouds over global growth mean a carefully crafted soft landing is now at greater risk of a harder bump.

The government’s statistics agency will release the figures for second-quarter gross domestic product Friday. A survey by Dow Jones Newswires showed the median forecast at 3.3% growth, down from 4.5% in the first quarter.

The decline is largely attributed to industrial output, which accounts for about 30% of Brazil’s economy and advanced just 0.7% in the second quarter. Strong consumption amid still-plentiful credit continued to drive the economy forward.

If confirmed, that would be the fourth consecutive month in which growth has slowed since the sharp bounce-back from the mild 2009 recession. As the global economy has shown signs of further trouble ahead, economists have started slashing their forecasts for growth this year and next.

Growth this year is now seen at 3.8%, according to the latest survey of economists published by the central bank. For 2012, the expectation is for 4.3% growth.

Industrial activity “posted a very timid quarter” as government efforts to slow lending took effect, particularly in the car industry, said Aurelio Bicalho, an economist at bank Itau Unibanco Holding SA (ITUB4.BR, ITUB). Moreover, the relentless appreciation of the Brazilian real hurt exports of manufactured goods, he said.

Strong consumption, meanwhile, remained in place, as many consumers still have access to loans, unemployment is at record lows and wages are higher. That combination allowed Brazilians to go on a spending spree that pushed inflation past the ceiling of the government’s target of 4.5%, plus or minus two percentage points.

“We expect consumption to continue to drive overall activity, as labor and credit markets conditions throughout the quarter remained supportive. We continue to see real economy slowing to 3.8% this year, and the output gap trending down but still in positive territory,” Barclays Capital said in a research report Friday.

The big uncertainty remains the global economy. If, as some are suggesting, the U.S. and Europe plunge back into recession, dragging global growth with them, then the outlook for Brazil is likely to become more negative.

“In our negative scenario, the world grows only 2.5% in 2012 (not 3.5%). Brazil grows around 3%,” said economists at Itau Unibanco. In that case, inflation falls and the central bank cuts interest rates, but how far depends on “growth, inflation and, crucially, on fiscal policy.”