Brazilian Stocks Decline as GDP Report Sparks Depression Warning

  • GDP shrank more than analysts forecast in the third quarter
  • Insurance company Porto Seguro leads gains in financial stocks

Brazilian stocks dropped for a third day after a report showed Latin America’s biggest economy contracted more than forecast, spurring Goldman Sachs Group Inc. to say the nation is sinking into “an outright depression."

Meatpacker JBS SA added to its longest losing streak in two years, while rival Marfrig SA tumbled to a three-month low. The Ibovespa fell 0.2 percent to 45,046.75 Tuesday in Sao Paulo. Brazil is heading toward its longest recession since the 1930s with unemployment climbing and retail sales sinking as the government struggles to get support for measures intended to tame a budget deficit and restore growth.

“Brazil is stuck amid a political and economic crisis, and that’s discouraging both families and companies from investing,” said Cristiano Oliveira, chief economist at Banco Fibra. “That’s why the worst part of the GDP data is the sharp decline in spending. We expect at least three more quarters of contraction, which means very bad news for companies.”

The country’s gross domestic product contracted 1.7 percent in the three months through September, exceeding the average estimate for a 1.2 percent decline among analysts surveyed by Bloomberg. Consumer spending dropped 1.5 percent from the previous three months. Total earnings for Ibovespa companies were 15 percent below analysts’ estimates in the third quarter, according to data compiled by Bloomberg.

“What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand,” Alberto Ramos, chief Latin America economist at Goldman Sachs, wrote in a report Tuesday.

The arrest of the government’s leader in the Senate last week amid a corruption probe added to speculation that it will be even harder for the government to push through its economic plan.

The Ibovespa is trading at 10.5 times estimated earnings, which is 10 percent below its average in the past year. Losses on the gauge Tuesday were limited as financial stocks gained. The MSCI Brazil/Financials Index advanced 2.4 percent, led by insurer Porto Seguro SA, after closing at a one-month low Monday.

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