Bloomberg News

Brazil August Economic Activity Contracts More Than Expected

October 13, 2011

(Updates with analyst forecasts in second paragraph.)

Oct. 13 (Bloomberg) -- Brazil’s economy contracted more than expected in August, cementing expectations that policy makers will continue to cut interest rates.

Economic activity, a proxy for gross domestic product, fell 0.53 percent in August from the previous month, according to the central bank’s seasonally adjusted index, after expanding a revised 0.34 percent in July. The decline was steeper than the median forecast of a 0.4 percent slide from 13 analysts surveyed by Bloomberg.

Activity was up 2.93 percent from the same month a year ago, according to the non-seasonally adjusted series.

Traders are betting the central bank will cut its benchmark interest rate half a point to 11.5 percent at its Oct. 18-19 policy meeting, according to Bloomberg estimates based on interest rate futures yields. Central bank President Alexandre Tombini said last week “moderate” cuts in interest rates will help shield the economy from the European debt crisis and won’t compromise the country’s inflation target.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell one basis point, or 0.01 percentage point, to 10.45 percent at 11:38 a.m. New York time. The real strengthened 1.4 percent to 1.7507 per dollar.

Lower Forecast

Finance Minister Guido Mantega told reporters in Paris today that Brazil’s economy will grow 3.5 percent to 4 percent this year, and could expand 5 percent in 2012. In 2010, Brazil grew 7.5 percent, its fastest expansion in more than two decades.

Consumer prices rose 7.31 percent in the year through September, exceeding the 6.5 percent upper limit of the central bank’s target range for a sixth straight month. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Retail sales in August fell the most since March 2010. Industrial output contracted in August for the third time in five months, while business confidence in the third quarter fell to its lowest level in more than two years.

Brazil will grow more slowly than China, India and Russia this year and in 2012, the International Monetary Fund forecasts.

Tombini cut the benchmark interest rate a half point to 12 percent on Aug. 31, after raising it at the previous five policy meetings, citing a “substantial deterioration” in the global economy.

--Editors: Harry Maurer, Philip Sanders

BZEAMOM% <Index> CN BZEAYOY% <Index> CN

To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net; Andre Soliani at asoliani@bloomberg.net.

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


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