Brazil November Economic Activity Unexpectedly Contracts

Brazil’s economic activity unexpectedly contracted in November, as the central bank extends the world’s biggest benchmark rate increases amid signs of slowing growth.

The seasonally adjusted economic activity index, a proxy for gross domestic product, fell 0.31 percent in November from the prior month after growing a revised 0.71 percent in October, the central bank said today in a report posted on its website. The result was worse than expected by all but one of 32 economists surveyed by Bloomberg, whose median estimate was for a 0.1 percent expansion.

President Dilma Rousseff is working to jump-start the world’s second-largest emerging market through infrastructure auctions after gross domestic product contracted in the third quarter for the first time since 2009. At the same time, the central bank this week extended the world’s biggest key rate increase to combat the fastest inflation in a decade, which has harmed investor and consumer confidence. Analysts forecast policy makers will fail, as they expect faster price increases and lower growth this year.

“The rhythm of economic activity is still a problem,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento, said by phone. “We thought retail sales could lead to positive growth, but they didn’t. That means other services had poorer results in November.”

Swap rates on the contract due in January 2015 were unchanged at 10.93 percent at 9:42 a.m. local time. The real strengthened by 0.3 percent to 2.3540 per U.S. dollar.

Key Rate

Brazil’s central bank on Jan. 15 raised the benchmark Selic by 0.5 percentage point to 10.5 percent. Policy makers have lifted borrowing costs in seven straight meetings beginning last April, after cutting the key rate to a record low of 7.25 percent in October 2012.

Monthly inflation in December quickened the most since April 2003, as higher fuel costs helped prices jump 0.92 percent. Annual inflation in 2013 accelerated to 5.91 percent from 5.84 percent in 2012, thwarting pledges from central bank President Alexandre Tombini that consumer price increases would slow.

Even as the government tries to revive growth, economic activity remains uneven. While retail sales in November rose more than economists’ forecast, industrial output in the same month fell for the first time since July, according to the national statistics agency.

The central bank’s economic index rose 1.34 percent from the year before, less than the 1.90 percent median estimate from 29 economists.

Brazil’s central bank in December cut its 2013 growth forecast to 2.3 percent from 3.1 percent at the start of last year. Economists in the bank’s latest weekly survey predict growth of 1.99 percent.

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