Bloomberg News

Brazil Economic Activity Expands at Slowest Pace in 2 Years

November 18, 2011

(Updates with analyst comment in third paragraph.)

Nov. 17 (Bloomberg) -- Brazil’s economy grew at its slowest pace in two years in September, cementing bets that the central bank will continue to cut interest rates to prevent a recession.

Economic activity, a proxy for gross domestic product, expanded 1.17 percent in September from a year earlier. The increase was lower than the median forecast of 1.25 percent from 14 analysts surveyed by Bloomberg.

The seasonally adjusted index rose 0.02 percent from a month earlier, the central bank said in a report published on its website.

The “strong and sharp” deceleration of activity shows that economic growth is likely to slow almost to zero in the third and fourth quarters, and may even turn negative, said Enestor Dos Santos, senior Brazil economist for BBVA in Madrid. Central bank President Alexandre Tombini said yesterday that policy makers are contemplating further “moderate adjustments” to interest rates to offset the effects of the global crisis.

“At this point, it is clear they are more concerned with growth and the global environment,” Dos Santos said in a telephone interview. “Concerns about a recession in Brazil should not be ruled out.”

Traders are betting the central bank will cut borrowing costs 0.50 percentage point to 11 percent at its Nov. 29-30 policy meeting, and to 9.75 percent by May, according to Bloomberg estimates based on interest rate futures.

Debt Turmoil

The extra yield investors demand to hold 10-year bonds from France, Belgium, Spain and Austria instead of German bunds all hit euro-era records this week as European debt turmoil spread. Tombini began slashing rates in August to shield Brazil from the world economic crisis.

The yield on interest rate future contracts maturing in January 2013 fell one basis point, or 0.01 percentage point, to 9.93 percent at 1:34 p.m. Brasilia time. The real strengthened 0.2 percent to 1.7673 per U.S. dollar.

Brazil’s economy has been showing signs of slowing in recent weeks.

Industrial production contracted 2 percent in September, the second-biggest fall since the decline that followed the collapse of Lehman Brothers Holdings Inc. in 2008. Vehicle sales fell 7.5 percent in October from a year earlier, and third- quarter business confidence was the lowest since the first three months of 2009.

Economists cut their forecast for 2011 economic growth for a sixth straight week, to 3.16 percent, in the most recent central bank survey. Last year, the economy grew 7.5 percent, its fastest pace in more than two decades.

The central bank last week unwound most of the credit curbs that it imposed in December on auto loans, personal loans and payroll loans, to shore up demand.

Consumer prices rose 6.97 percent in October from a year earlier, the first decline in the inflation rate in 14 months.

Brazil targets inflation of 4.5 percent, plus or minus two percentage points. Inflation has exceeded the upper limit of the target range for the last seven months.

--With assistance from Ainhoa Goyeneche in Madrid. Editors: Harry Maurer, Philip Sanders


To contact the reporter on this story: Matthew Bristow in Brasilia at

To contact the editor responsible for this story: Joshua Goodman at

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