Bloomberg News

Brazil Economy Expanded in May at Slowest Pace This Year

July 13, 2011

(Updates with details of report in second paragraph.)

July 13 (Bloomberg) -- Brazil’s economy expanded in May at the slowest pace this year and by less than economists expected.

Economic activity, a proxy for gross domestic product, rose 0.17 percent in May from the previous month, according to the central bank’s seasonally adjusted index, from 0.44 percent in April. The expansion was slower than the 0.4 percent median forecast in a Bloomberg survey of seven analysts and was the slowest since a 0.06 percent rise in December.

Activity was up 4.25 percent from the same month a year ago.

Central bank President Alexandre Tombini has tried to slow Latin America’s biggest economy by raising the benchmark Selic rate at all four of the bank’s policy meetings this year, to 12.25 percent. Traders are betting on two further quarter-point increases this month and in August, according to Bloomberg estimates based on interest rate futures.

Since April, inflation has exceeded the 6.5 percent upper limit of the bank’s target range. Consumer prices rose 6.71 percent in June from a year earlier, the fastest pace in six years. Tombini told a Senate hearing last week that he expects inflation to peak in August.

The central bank targets inflation of 4.5 percent, plus or minus two percentage points. Tombini has repeatedly said that the central bank aims to slow inflation to the mid-point of the target by 2012.

Retail Recovery

Recent indicators show that the central bank may have more work to do to cool the economy. Retail sales recovered in May following an unexpected fall the previous month. Industrial capacity utilization was 82.40 percent in May, the same level it was in December before the central bank began raising rates. Consumer confidence rose in June from May.

Analysts expect growth to slow to 3.94 percent this year, according to the median forecast in a July 8 central bank survey. Last year, the economy expanded 7.5 percent, its fastest pace in more than two decades. Brazil’s economy will grow slower than those of Russia, India and China, the other so-called BRIC countries, between 2011 and 2014, according to forecasts from the International Monetary Fund.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, rose one basis point, or 0.01 percentage point, to 12.70 percent at 11:37 a.m. New York time.

--With assistance from Dominic Carey in Sao Paulo. Editors: Harry Maurer, Richard Jarvie

BZEAMOM% <Index> CN

To contact the reporter on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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