Brazil’s Economic Activity Grew at Fastest Rate in 11 Months

Brazil’s economic activity rose more than forecast in July, posting the biggest expansion in almost a year, as growth in the world’s second-biggest emerging market gains momentum.

The non-seasonally adjusted economic activity index rose 2.34 percent from a year earlier after rising 0.99 percent in June, the central bank said today in a report. The forecast was for a 2.1 percent expansion, according to the median estimate of 23 economists surveyed by Bloomberg. Activity rose a seasonally adjusted 0.42 percent in July, more than the 0.3 percent median forecast by 28 economists.

Today’s report is the latest sign that Brazil’s economy is turning the corner and is unlikely to need any further monetary stimulus. Since August 2011, the administration of President Dilma Rousseff has lowered interest rates more than any other Group of 20 nation to record 7.5 percent, cut taxes on company payrolls and consumer goods and encouraged banks to lower lending costs.

“It is practically guaranteed that the cycle of Selic rate cuts is finished,” Jose Francisco De Lima Goncalves, chief economist at Banco Fator SA, said in a telephone interview from Sao Paulo.

Central bank President Alexandre Tombini on Sept. 12 told a Senate hearing that economic growth is set to accelerate in the remainder of this year and through 2013.

While Brazil expanded an annualized 1.64 percent in the second quarter, less than Japan and the U.S., recent indicators point to a pick-up in activity. Retail sales beat economists’ forecasts in July, rising at the second-fastest pace since January, and automobile sales in August soared to a record high, spurred by tax breaks. Traders have pared bets that policy makers in Latin America’s largest economy will lower interest rates for a 10th straight time next month.

Still, Brazil’s industrial production in July fell 2.9 percent from a year ago as manufacturers struggle with high costs of doing business and uncertainty in the global economy. Consumer loan defaults matched a 30-month high in the same month, even as government officials have said that figure will fall. Yesterday, Finance Minister Guido Mantega cut his 2012 growth forecast to 2 percent from 3 percent.

Rising wages and a spike in food and beverage costs also led the pace of consumer price increases to quicken for the second straight month in August, to 5.24 percent. Inflation will slow to the central bank’s 4.5 percent target in a “non- linear” way during the rest of the year, Tombini said.

Growth in July was the fastest since 3.04 percent in August 2011.

To contact the reporter on this story: Matthew Malinowski in Santiago at mmalinowski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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