Brazil Economy Shrinks More Than Forecast

by David Biller at Bloomberg

Brazil’s economy contracted more than analysts forecast in the second quarter, as tighter monetary policy and faster inflation torpedoed confidence and caused activity to nosedive.

Gross domestic product contracted 1.9 percent in the second three months of the year from the previous quarter, the national statistics agency said in Rio de Janeiro on Friday. That was the biggest contraction in more than six years, and worse than the median estimate of a 1.7 percent fall from 41 economists surveyed by Bloomberg.

Latin America’s largest economy is suffering from multiple woes: borrowing costs at their highest since 2006, inflation at more than double the target, rising unemployment, a crumbling currency and a corruption scandal that could unseat President Dilma Rousseff. The government has also chopped investment as part of its effort to fortify fiscal accounts and avoid a sovereign downgrade to junk.

“There’s no source of growth for Brazil going forward, at least in the short term — we see all the confidence indices moving down,” Luciano Rostagno, chief strategist at Banco Mizuho do Brasil, said by phone from Sao Paulo. “There’s no sign that the economy has found a bottom, so I think we will continue to see poor data coming.”

The real, which has depreciated 25 percent this year, fell 0.4 percent to 3.5668 per U.S. dollar at 10:37 a.m. local time. Swap rates on the contract maturing in January 2017 rose nine basis points, or 0.09 percentage point, to 13.96 percent.

‘Deeper Recession’

First quarter GDP was revised downward to a contraction of 0.7 percent from a prior 0.2 percent decline, which signals an “even deeper recession,” according to Rostagno. GDP in the second quarter fell 2.6 percent from the same period last year, versus a median forecast for a 2.1 percent drop.

Family spending dropped 2.1 percent from the previous

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