Brazil scrapes out of recession on government spending

Monday, 1 December 2014 01:51 - - {{hitsCtrl.values.hits}}

Reuters: Brazil’s economy pulled out of a brief recession in the third quarter due to a spike in public spending before presidential elections, suggesting growth could be short-lived as the Government now plans to tighten policy. The economy grew 0.1% in the third quarter from the previous quarter, resuming growth after two consecutive quarters of contraction,

government statistics agency IBGE said on Friday. The number was weaker than the median forecast of 0.3% expansion in a Reuters poll of 36 analysts. Third-quarter growth was mostly driven by a steep 1.3% increase in government spending. That stimulus is set to end in coming quarters as re-elected President Dilma Rousseff reins in spending to restore market confidence and avoid a credit-rating downgrade. Investments as measured by fixed capital formation also grew, posting their first increase in more than a year. Nonetheless, the 1.3% rise was not strong enough to offset a sharp drop in the previous three months. Consumer spending, which represents nearly two thirds of the world’s seventh-largest economy, failed to grow for a third straight quarter, dropping dropped 0.3% between July and September. Brazil’s economy has disappointed since 2011, growing less than half its annual average in the prior decade. Global demand for the country’s commodities has cooled, inflation has remained stubbornly high and investor sentiment soured due to repeated, often erratic, Government intervention in the private sector. Brazil’s currency, the real, weakened 0.7% to 2.5472 per dollar.