Brazil economy contracts in Q3

Written by Agencies | Brasilia | Updated: Dec 4 2013, 08:32am hrs
Brazil's government said the economy of Latin America's biggest country contracted in the third quarter of the year, though it was up from the same period of 2012.

The IBGE statistics bureau on Tuesday said that Brazil's gross domestic product slipped 0.5% from this year's second quarter, missing forecasts in what has become a disappointing routine over the last three years. It rose 2.2% from the third quarter of 2012.

The bureau said that the GDP contraction was due mainly to a 3.5% drop in agricultural output and a 2.2% decrease in investments.

The industrial and services sectors were each up a mere 0.1% from the second quarter.

The weak quarter underscored mounting economic concerns in Brazil, which has struggled to contain inflation and stay competitive in recent years, tarnishing the promising reputation it earned with a decade of robust growth.

A full-blown recession remains unlikely in Latin America's largest economy, but the slowdown highlights the chances of weak growth and a possible credit rating downgrade next year, when President Dilma Rousseff is expected to seek re-election.

Vanishing growth combined with new evidence of stagnation from January to March reinforced expectations that Brazil's central bank could soon wrap up a cycle of interest rate hikes aimed at cooling inflation. Yields on interest rate futures fell on Tuesday as traders bet increasingly on a single, smaller rate hike in January.

The stagnation in Brazil contrasts with major emerging-market peers such as Mexico, India and China, where economic growth recovered between July and September after disappointing in the first half of the year.