Brazil Second-Quarter GDP Slowed Less Than Expected
Brazil's central Bank President Meirelles
Simon Dawson/Bloomberg
Henrique Meirelles, president of the central bank of Brazil.
Henrique Meirelles, president of the central bank of Brazil. Photographer: Simon Dawson/Bloomberg
Brazil’s economic growth slowed less than expected in the second quarter, on a record jump in investment, adding to pressure on the central bank to resume raising interest rates in 2011. Yields jumped.
Gross domestic product grew 1.2 percent in the three months through June from the previous quarter, compared with a 2.7 percent expansion in the first quarter, the national statistics agency said today in Rio de Janeiro. Economists surveyed by Bloomberg expected 0.7 percent growth, according to the median of 41 forecasts. GDP grew 8.8 percent from the previous year.
The central bank this week voted to hold the benchmark interest rate unchanged at 10.75 percent, citing lower inflation risks as economic growth slowed from its fastest pace in 15 years during the first quarter.
Today’s stronger-than-expected report is reinforcing market bets that “the central bank will be forced to resume tightening right after the elections, or in the first quarter of 2011,” said Zeina Latif, senior economist for Latin America at RBS Securities Inc. in Sao Paulo.
Yields, Rate Horizon
Yields on interest rate futures rose across the board. The yield on the contract due in January 2012, the most traded on the Sao Paulo BM&F futures exchange, jumped five basis points to 11.36 percent at 11:22 a.m. New York time. The real, which has strengthened 8 percent against the U.S. dollar in the last 12 months, gained 0.1 percent to 1.7235 per dollar.
Traders expect policy makers to raise the rate to 12 percent after July 2011, according to Bloomberg estimates based on interest rate futures contracts.
Consumer demand rose 0.8 percent from the previous quarter, while government spending rose 2.1 percent. Investment expanded 2.4 percent from the previous quarter and 26.5 percent from a year ago, the biggest jump since the series began in 1996.
“Investment was robust, and consumption was quite resilient,” said Marcelo Carvalho, head of the Latin American economic research at BNP Paribas in Sao Paulo. He expects policy makers to resume raising borrowing costs next year.
Latif expects the bank will lower interest rates 50 basis points, to 10.25 percent, by the end of 2011 as the global economy stagnates.
The second quarter reading puts Brazil on a growth path “more compatible with long-term equilibrium”, the central bank said in a statement on its website. The bank expects GDP to grow 7.3 percent in 2010, the statement said, unchanged from the forecast in its quarterly inflation report published June.
Finance Minister Guido Mantega said in a conference call with reporters that he expects economic growth to slow in the second half of the year.
Meirelles’s Call
Imports jumped 38.8 percent from a year ago, five times the 7.3 percent increase in exports, as consumers took advantage of a strong currency to travel and increase purchases abroad.
Central bank President Henrique Meirelles said Aug. 18 that the economy will heat up again in the third quarter.
GDP will expand 7.09 percent in 2010, according to a central bank survey of about 100 economists published this week. The economists cut their forecast from 7.2 percent in July.
Slower growth in the second quarter came after industrial output fell from the first three months of the year, and vehicle sales slumped 21.5 percent in April from the previous month after tax breaks expired.
Profits
Brazilian retailers reported rising profits in the second quarter.
Rio de Janeiro-based Lojas Americanas SA, the country’s biggest discount retailer, said second-quarter profit jumped more than fourfold to 28.6 million reais ($16.6 million) from 6.1 million reais a year earlier.
Cielo SA, Brazil’s biggest card-payment processor by market value, said profit rose 26 percent in the second quarter to 457.7 million reais from 364.8 million reais a year earlier.
Brazil’s consumer prices unexpectedly fell last month, taking the annual inflation rate to 4.44 percent through mid- August, below the government’s 4.5 percent target for the first time since January.
Even as 2010 inflation slows, forecasts for next year have risen to 4.87 percent, from 4.8 percent four weeks ago, according to the central bank survey.
Brazil’s economy in the second half of the year will continue to be driven by domestic demand from the country’s expanding middle class, and demand from China, which will help offset “dismal” growth in Europe and the U.S., Rooney Vera said.
To contact the reporter on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net Iuri Dantas in Brasilia at idantas@bloomberg.net
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