Brazil Not Out of the Woods Yet. 1.3% GDP Growth Lower than Expected

Motorcycle plant According to the official release on Thursday from the Brazilian statistics office, the IBGE, Brazil's economy grew 1.3% in the third quarter of 2009 compared to the previous quarter.

Compared to the same period a year ago, GDP dropped 1.2% and in the nine first months of 2009, the Brazilian economy contracted 1.7% when January September 2008 is analyzed.

As to the different sectors, the manufacturing industry advanced 2.9% in the third quarter over the previous three months, but agriculture on the other hand contracted 2.5% and the services sector expanded 1.6%.

The Brazilian economy after having experienced a strong 3.4% contraction in the last quarter of 2008 and another 1% in the first three months of 2009, technically in recession, on the second quarter expanded vigorously reaching 1.9%.

The latest expansion of the third quarter confirms that Brazil's economy is consolidating a recovery process although there still is a percentage of idle production capacity, as was confirmed Wednesday when the Central Bank decided to leave interest rates unchanged (8,75%) since inflation was well in the target range.

Nevertheless the Brazilian National Confederation of Industry (CNI) said that "economic recovery was proving to be slower than expected", admitting it had expected 1.9% expansion instead of 1.3%.

However CNI accepts that IBGE revised figures for the fourth quarter of 2008, less intense than first announced (from 3.4% to 2.9%) has elevated the statistics comparison base.

"This means that if the crisis was less severe than estimated, recovery is proving to be slightly less," said CNI.

More over CNI points out that investment in the third quarter has picked up, 6.5% "which is positive since it means a return of investment following the retraction because of the crisis".

CNI is also encouraged by the growing demand for fixed capital, the highest since the first quarter of 2006, and consumer demand, up 2% over the previous quarter which is also indicative of the sustained recovery of the economy".

Finally CNI underlines that the 6.9% fall in the third quarter industrial GDP compared to the same period a year ago "is signaling a more intense retraction than expected", which could have an impact on the CNI growth estimates for the whole of 2009, which was established at a floor of 0%.. Revised figures will be released next week.

Mercopress

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