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Brazil’s Economic Activity Slows by Half in Fourth Quarter

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Feb. 20 (Bloomberg) --Brazil’s fourth quarter economic expansion slowed by about half from the previous period, as investments faltered in the world’s second-largest emerging market.

The seasonally adjusted economic activity index, a proxy for gross domestic product, rose 0.62 percent in the fourth quarter, compared with 1.12 percent the three months prior, the central bank said today in a report posted on its website. Yearlong growth fell to 1.6 percent from 2.7 percent in 2011.

President Dilma Rousseff’s administration has worked to reverse two years of declining growth while slowing the highest inflation in a year. Officials have cut taxes for industry and consumers, maintained the benchmark interest rate at a record low of 7.25 percent and allowed the real to strengthen the most among major currencies against the dollar this year in order to lower prices of imports. Falling investment slowed economic growth last year, said Flavio Serrano, senior economist at Banco Espirito Santo de Investimento SA.

“The government’s focus on investments was modest,” Serrano said in a telephone interview from Sao Paulo. “We had favorable results in terms of family consumption, but the economy was not able to grow because of lack of investments.”

The world’s sixth-largest economy grew 1 percent last year, the central bank estimates. That’s down from 2.7 percent in 2011 and 7.5 percent in 2010.

December Results

The economic activity index rose 0.26 percent in December after increasing a revised 0.57 percent in November, the central bank reported. Analysts expected a 0.3 percent increase, according to the median estimate from 15 economists surveyed by Bloomberg.

The non-seasonally adjusted index rose 1.19 percent from a year ago, compared with a median estimate of 1.4 percent from 17 economists surveyed.

Flagging growth hasn’t stopped consumer prices from rising. In January they jumped the most in almost eight years, as annual inflation reached 6.15 percent. The central bank targets inflation of 4.5 percent plus or minus two percentage points.

Analysts covering Brazil have increased 2013 inflation forecasts while cutting growth predictions for six of the last seven weeks, according to the latest central bank survey. Economists forecast inflation of 5.70 percent this year and growth of 3.08 percent, compared with 5.47 percent and 3.30 percent at the end of December, respectively.

Brazil’s retail sales unexpectedly dropped 0.5 percent in December, the national statistics agency said yesterday.

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

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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