(Updates with finance minister forecast in third paragraph, and analyst comment in fifth paragraph.)
Feb. 16 (Bloomberg) -- Brazil’s economy grew at its second- slowest pace since 2003 last year, after the central bank raised interest rates in the first half of the year and European debt turmoil spread.
Brazil’s economic activity index, a proxy for gross domestic product, rose 2.7 percent last year, the central bank said in a report published on its website today. Should GDP show a similar reading, it would be the slowest growth in eight years, apart from 2009 when the economy contracted in the wake of the global financial crisis sparked by the 2008 bankruptcy of Lehman Brothers Holdings Inc.
Growth will pick up speed in the second half of the year and reach an annualized pace of more than 5 percent, due to government stimulus measures, Finance Minister Guido Mantega said today. Policy makers began a cycle of interest rate cuts in August to shore up demand in Brazil as the world economy deteriorated.
Traders are betting the central bank will cut borrowing costs by half a percentage point for a fifth straight meeting in March, to 10.00 percent, and to as low as 9 percent by August, according to Bloomberg estimates based on interest rate futures.
“We are going to see the effects of the monetary stimulus that has been granted since August having its full impact in the second half of the year,” said Jankiel Santos, chief economist at Espirito Santo Investment Bank, speaking by phone from Sao Paulo. “It’s pretty much sure that we’re going to see a more robust pace in the second half than in the first.”
Santos expects Brazil’s economy to grow 3.5 percent in 2012.
Seasonally adjusted economic activity rose 0.57 percent in December from a revised 1.29 percent gain in November. The median forecast of 21 analysts surveyed by Bloomberg was for a 0.60 percent increase. The December gain marked the first time the index has risen for two consecutive months since last March. The seasonally-adjusted index rose 2.8 percent last year.
During a trip to Mumbai this month, central bank President Alexandre Tombini said that inflation is on a downward trend in Brazil, giving policy makers room to continue cutting interest rates. Mantega said yesterday that Brazil’s plan to trim 55 billion reais ($31.9 billion) from this year’s budget will also create space for the central bank to cut rates.
The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell four basis points, or 0.04 percentage point, to 9.23 percent at 2:53 p.m. The real rose 0.2 percent to 1.7256 per dollar.
Retail sales rose 0.3 percent in December, more than the 0.1 percent forecast by analysts, while unemployment fell to a record low of 4.7 percent.
Economists covering Brazil expect the economy to grow 3.3 percent in 2012. Growth slowed to about 3 percent last year from about 7.5 percent in 2010, Tombini said Feb. 2.
--With assistance from Dominic Carey in Sao Paulo. Editors: Harry Maurer, Robert Jameson
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