Brazil's
economy slowed in the second quarter as it began to feel
effects of a weaker global growth, signaling a sharper slowdown
expected in the months ahead as its boom fades.
Agricultural output slumped and industrial growth fell
sharply in the three-month period, but were partly offset by
Brazil's resilient consumers and robust investment.
Signs have grown that the economy has entered a sharper
slowdown in recent weeks, however, as a weaker global economy
exacerbates a deceleration in Brazil after its breakneck -- and
unsustainable -- expansion of 7.5 percent last year.
Brazil's central bank shocked investors this week by
slashing interest rates by 50 basis points to 12 percent,
citing a "substantial deterioration" in the international
outlook as the United States and Europe struggle with debt and
anemic growth.
Gross domestic product in Latin America's largest economy
grew 0.8 percent from the previous quarter after a 1.2 percent
expansion in the first three months of the year, the statistics
agency IBGE said on Friday. That was in line with the median
forecast of 17 analysts in a Reuters poll.
"The number still shows an economy growing above its
capacity. It's a reasonable (growth) rate," said Zeina Latif,
Latin America economist with RBS Securities. But, she added,
"there will be a stronger slowdown."
GDP grew 3.1 percent compared with a year earlier, down
from 4.2 percent in the previous quarter.
The country's consumers, backed by record employment,
continued to spend briskly.
Consumer spending, which makes up about 60 percent of the
economy, rose 1.0 percent from the previous quarter, speeding
up from 0.7 percent in the first three months. Consumers have
been a key pillar of Brazil's robust growth in recent years,
but analysts say they may soon show signs of fatigue after
years of credit-fueled buying.
Slower growth may let policy makers advance two key goals
-- bringing down nagging inflation and further easing its lofty
interest rates following this week's shock move by the central
bank to cut its benchmark rate by 50 basis points.
But it also signals that Brazil, which has been a rare
bright spot in the struggling global economy, risks falling
behind fellow fast-growing emerging markets such as China and
India. It could face further weakening of corporate profits and
a continued slump in the Bovespa stock index .BVSP that is
already one of the world's weakest markets this year.
The GDP reading came before the latest turmoil in global
equities markets triggered by a downgrade of U.S. debt and
signs that Europe's debt crisis is deepening.
"Looking ahead, leading indicators available so far suggest
weak growth in Q3. The global contraction will intensify and
accelerate a domestic slowdown that was already unfolding,"
said Marcelo Carvalho of BNP Pariba Corporate & Investment
Banking.
SLOWDOWN SETS IN
The Bovespa index was down 1.58 percent in morning trading
after the data release, tracking a slump of 1.79 percent in the
Dow Jones Industrial Average. Brazil's currency, the real, also
slipped against the dollar in line with weak foreign markets.
Growth was dragged down by a 0.1 percent quarter-on-quarter
slump in the country's powerful agricultural sector, a key
element of its export earnings, compared with a 3.0 expansion
in the first quarter.
Industry posted a meager 0.2 percent growth compared to a
more robust 2.2 percent increase in the prior three months.
Brazilian industries have struggled in the face of high
interest rates and a strong real BRBY, which has made exports
less competitive and led to a flood of imported products that
are cheaper than locally manufactured goods.
Brazil's industrial output in July -- the last month of the
second quarter -- already fell short of expectations, a sign
the slowdown could be more pronounced in third quarter.
This week, Brazil's main steel industry association cut its
forecast for steel output this year and Brazil's largest
airline TAM (TAMM4.SA) (TAM.N) said it was reducing its
projected fleet at the end of next year to fit with a "a more
modest market" than expected.
Factors helping expansion included a 1.7 percent increase
in investment and a 1.2 percent growth in government spending.
The slowdown has partly been engineered by the government
of President Dilma Rousseff, which has spent months seeking a
soft-landing for Brazil's overheating economy by trimming state
spending and committing itself to fiscal discipline.
The problem for policy makers seeking to cushion the
economy from a sharp slowdown is that inflation remains
stubbornly high at a 7 percent annual rate.
Rousseff earlier this year slashed nearly $30 billion in
state spending and this week outlined new fiscal measures meant
to help the country lower its interest rates, which at 12
percent remain among the highest of any major economy.
