Brazil economy emerges from slowdown as stimulus takes hold

Brazil’s economy in the second quarter showed signs that it’s turning the corner after a year of stagnation as government stimulus measures help offset the impact of the global crisis.

Gross domestic product expanded 0.4 percent from the previous three months, the fastest pace in a year, the national statistics agency said today. That compares with a median forecast of 0.5 percent growth in a Bloomberg survey of 51 analysts.

While that pace is four times the revised 0.1 percent first-quarter growth, economists say there’s little evidence of a strong recovery. With industrial output falling amid Europe’s debt crisis and weaker demand from China for Brazil’s exports, tax breaks to spur consumption won’t be enough to ensure that growth this year exceeds that of the U.S. and Japan, according to Bloomberg surveys of economists. Brazil’s economy grew at an annualized pace of 1.64 percent in the April-June period.

“We’re a ways away from saying the whole economy is off to the races,” Bret Rosen, a Latin America strategist at Standard Chartered Bank, said in a phone interview from New York. “There are some figures that would lead us to be a little more optimistic, but you don’t want to declare a peak or a trough from just a few data points.”

Industry, Investments

Industrial output fell 2.5 percent in the second quarter due to declines in manufacturing, mining and civil construction, while investment declined 0.7 percent, according to the report.

“Investment fell due to the weak international scenario and domestic demand that’s also weak,” Newton Rosa, chief economist at SulAmerica Investimentos, said by telephone from Sao Paulo. “Betting on expanding production capacity is very difficult.”

Agriculture grew 4.9 percent in the second quarter, and was the leading contributor to GDP expansion. The services sector also expanded 0.7 percent and family consumption rose 0.6 percent.

To kick start growth that is trailing Russia, India and China, President Dilma Rousseff’s government has cut payroll taxes, lowered levies on cars and appliances and implemented policies that have weakened the real more than any major currency this year. The central bank has done its part by lowering borrowing costs by 500 basis points since last August, more than any Group of 20 nation, taking the benchmark Selic rate this week to a record low 7.5 percent.

The stimulus helped boost vehicle sales from 257,887 in April to 364,196 in July, while a 1.5 percent jump in retail sales in June surprised economists by the most since Bloomberg began compiling the data in 2008.

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