Brazil’s smaller-than-estimated contraction in the first quarter failed to convince traders that Latin America’s largest economy is improving. The Ibovespa extended its worst monthly decline since January.
Gross domestic product contracted 0.2 percent in the first three months of the year, the national statistics agency said Friday. That was a better result than the median estimate of a 0.5 percent contraction from 42 economists surveyed by Bloomberg. Both consumer and government spending retreated.
“Let’s be honest, a decline of 0.2 percent or 0.5 percent would be equally bad,” Alvaro Bandeira, a partner at Orama Asset Management, which oversees 248 million reais ($77.9 million) in Rio de Janeiro, said by phone. “Investments and consumption are down. Prospects for Brazil are still very negative.”
Analysts in a central bank survey published Monday forecast the worst economic contraction since 1990, while boosting their estimates for Brazil’s inflation and the benchmark interest rate this year. The government has raised taxes and cut expenses to rein in the largest budget gap in 16 years and attempt to hang on to the country’s investment-grade rating.
The Ibovespa retreated 2.3 percent to 52,760.48 at the close of trading in Sao Paulo, the worst drop among major benchmarks in the Americas. The gauge has slumped 6.2 percent this month and capped a second week of losses.
Brazilian equities entered a bull market last month, after rallying more than 20 percent from their January low, on prospects for government spending cuts. Since then, the Ibovespa has fallen 6.8 percent on concern the economy would slow even further.
“We haven’t reached rock bottom yet,” Celson Placido, the chief economist at brokerage XP Investimentos, said in a phone interview from Sao Paulo. “The deceleration is spread among most sectors.”
Earnings for Ibovespa companies sank by an average 25 percent in the first quarter, according to data compiled by Bloomberg. Revenue trailed analysts estimates by 3.5 percent.
Nine out of the 10 groups in the MSCI Brazil Index retreated. Lender Itau Unibanco Holding SA contributed the most to the Ibovespa’s decline. Banco Santander Brasil SA fell to the lowest in a month.
Not even the increase in the amount of credit available for mortgages announced Thursday by the government was able to boost the BM&FBovespa Real Estate index. The measure extended a two-day slide, led by BR Malls Participacoes SA.
“Clearly, the problem is not credit, it’s demand,” Placido said.
Vale SA, the world’s largest iron-ore producer, dropped with the steelmaking ingredient.
Trading volume of equities in Sao Paulo was 10.1 billion reais Friday, according to data compiled by Bloomberg. That compares with a daily average of 6.97 billion reais, according to the exchange.