Brazil Blames Dismal GDP on Peoples’ Love for Soccer

Brazil’s economy expanded less than anticipated in the second quarter as workers across the nation headed home early to watch the country’s soccer team play in the month long World Cup, the government said yesterday.

Gross domestic product in Latin America’s largest economy rose 1.2 percent in the April-June period compared to the same quarter a year earlier, leaving growth at a disappointing 1.7 percent rate for the 12 month-period from July 2005 through June, the Brazilian Census Bureau said.

The quarter to quarter rate was far slower than the 3.3 percent expansion during the January-March period this year compared to the same quarter last year, and came in below estimates by economists surveyed by Dow Jones Newswires.

Besides the work slowdowns during the World Cup, Brazilian exports were also crimped during the quarter because Brazil’s currency, the real, advanced strongly against the US dollar at the beginning of the year.

The government has predicted that Brazil’s economy will grow 3.5 percent for 2006, following 2.3 percent growth last year. The disappointing quarterly report will likely prompt financial experts to reduce their expectations for near-term economic growth.

But many economists expect Brazil’s economy will pick up steam again in the second half of the year with increasing consumer spending following a series of decreases in Brazil’s sky-high benchmark interest rate.

GDP, the nation’s total output of goods and services, edged up only 0.5 percent in the second quarter compared to the first quarter of 2006.

The report was bad news for President Luiz Inácio Lula da Silva, who is campaigning for re-election on a platform of improving Brazil’s economy.

But polls have shown da Silva could crush his main opponent, former São Paulo state Governor Geraldo Alckmin. Several surveys this week predicted he would win more than 50 percent of the vote in the October 1st elections, preventing the contest from going to a second round.

The GDP result was released a day after Brazil’s Central bank reduced the benchmark Selic rate from 14.75 percent to 14.25 percent. While down from 19.75 percent last year, the rate is still among the highest on the planet.

Industrial production fell 0.3 percent in the second quarter compared with the first quarter, largely because virtually all businesses and factories in the country of 185 million people closed early on the days that Brazil’s soccer team played during June’s World Cup competition in Germany.

Five-time champion Brazil played dismally, deeply disappointing the nation after being eliminated to eventual runner-up France in the quarterfinals. Italy won the World Cup.

Mercopress

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