Bloomberg News

Brazil Real Snaps Seven-Day Winning Streak as GDP Growth Stalls

December 07, 2011

Dec. 6 (Bloomberg) -- Brazil’s real fell for the first day in eight after a report showed growth in Latin America’s largest economy stalled, adding to concern the European debt crisis is hampering the global economic recovery.

The real weakened 0.3 percent to 1.7909 per U.S. dollar at 12:19 p.m. in Sao Paulo, from 1.7859 yesterday. Yields on the interest-rate futures contract due January 2013 fell four basis points, or 0.04 percentage point, to 9.79 percent, after climbing 20 basis points in the past three days of trading.

The real declined along with most other emerging-market currencies after Standard & Poor’s said it may cut the credit ratings of 15 euro nations and data showed Brazil’s gross domestic product failed to grow in the third quarter from the previous three months, the first quarter without expansion since the first three months of 2009. The European debt crisis and stagnant growth figures helped weaken the real as investors speculated demand for Brazilian commodities will wane, said Carlos Kawall, chief economist at Banco J. Safra SA.

“The GDP number had a negative bias,” he said in a telephone interview from Sao Paulo. “The scenario abroad is getting worse.”

Credit curbs, higher borrowing costs and budget cuts checked demand in the third quarter, reducing Brazil’s annual rate of growth to 2.1 percent, less than the 2.4 percent median estimate of 44 economists surveyed by Bloomberg.

Industrial output was hit by Europe’s debt crisis, falling in September at the second-fastest rate since the collapse of Lehman Brothers Holdings Inc. in 2008. Production sank 1.9 percent in September and 0.6 percent in October, the national statistics agency said today.

Weaker Demand

Manufacturers were already reeling from a 46 percent rally in the real against the dollar from the end of 2008 through August.

“I was struck by all the components of demand falling,” Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos, said in a telephone interview. “If it hadn’t been for the good performance in agriculture, quarterly GDP would have contracted.”

Brazil Finance Minister Guido Mantega said the main government strategy to shore up economic growth is to make credit cheaper. Mantega also told reporters in Brasilia the government won’t increase spending to foster economic growth amid the euro debt crisis.

Standard & Poor’s said yesterday it may cut the credit ratings of Germany, France and 13 other members of the euro, prompting investors to flee higher-yielding assets. The countries’ ratings may be cut depending on the result of a summit of European leaders Dec. 9, S&P said.

“We’re in a crucial moment for Europe,” Kawall said. “It’s better to relax fiscal policy through tax reductions than by increasing spending.

--With assistance from Alexander Ragir in Rio de Janeiro. Editors: Richard Richtmyer, Brendan Walsh

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in New York at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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