Brazil's economy booms in Q2, defying predictions-UPDATE 6
Trade the News
Friday September 03, 2010 05:06:19 PM GMT
* Brazil Q2 GDP grows 1.2 pct from Q1 vs 0.7 pct forecast
* Economy expands 8.8 percent from year-ago period
* Growth will help ruling party presidential candidate (Adds central bank president comments, updates yields)
By Luciana Lopez
SAO PAULO, Sept 3 (Reuters) - Brazil's economy grew 8.8 percent in the second quarter, defying forecasts of a steep slowdown as booming investment and strong consumer demand helped it outshine struggling economies in the developed world.
Compared with the first quarter, gross domestic product expanded 1.2 percent in the second quarter <BRGDP=ECI>, the government's statistics agency IBGE said on Friday.
That outstripped expectations of 0.7 percent quarterly and 8 percent annual growth in a Reuters survey.
The solid growth in Latin America's largest economy -- the world's eighth-largest -- adds more evidence to the growing clout of emerging markets, many of which have posted stronger growth rates this year than more-developed nations.
With a presidential election only a month away, the robust growth data could give an added boost to ruling party candidate Dilma Rousseff, who is already surging in the polls thanks to the popularity of her political benefactor, outgoing President Luiz Inacio Lula da Silva.
The latest data fueled speculation that interest rates may rise again in 2011 to control inflation and prevent overheating. But the central bank tried to reassure markets on Friday that it would not spur higher interest rates.
"The central bank is totally comfortable with this growth, absolutely within forecasts," said Henrique Meirelles, the bank's president. "We expect more moderate growth in the third and fourth quarter, so that the economy grows in balance over the long term," he added. Growth in those quarters should average about 0.7 percent, he said.
Yields on Brazilian interest rate futures contracts <0#DIJ:> rose nonetheless. The yield on the contract due January 2012 <DIJF2>, the most active of the session, rose to 11.36 percent in the afternoon from 11.31 percent. The yield rose as high as 11.41 percent earlier in the session.
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Instant view on the GDP data: [ID:nN03257654]
Factbox on political risks in Brazil: [ID:nRISKBR]
Graphic on GDP growth: http://link.reuters.com/mar39n
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With growth expected to slow next year, the government sees no need for additional measures to brake activity, Finance Minister Guido Mantega said on a conference call.
"This year we'll have an unusual result for Brazil, with a high rate of expansion, with inflation near the center of the government target," he said, adding that 2010 growth of at least 7 percent was now certain.
The annual growth came largely on a 26.5 percent surge year-on-year in capital spending, a sign that companies are investing to keep up with future demand. Industrial output grew 13.8 percent and household consumption expanded 6.7 percent even as interest rates rose during the quarter.
While the economy is poised to slow in the coming quarters, the second-quarter expansion was still fast enough to feed expectations of monetary tightening in 2011.
"Even though there has been a small slowdown it was still a very strong quarter, driven by family spending and domestic demand," said Marianna Costa, an economist with Link Investimentos. "Strong activity shows that the probability of a new cycle of interest rate hikes next year is higher."
RATE HIKES IN 2011?
Brazil's whopping 9 percent growth in the first quarter from the year-ago period was its fastest pace in more than a decade and, many analysts said, unsustainable.
The government stepped on the brakes: tax breaks on cars and home appliances that had drawn shoppers into malls and showrooms faded, and the central bank hiked the benchmark interest rate from a record-low 8.75 percent to 10.75 percent.
"This (GDP) number shows that the economy is still growing briskly, even after the withdrawal of the measures that fueled exceptional growth in the first quarter," said Newton Rosa, chief economist with SulAmerica Investimentos.
On Wednesday the central bank said that the interest rate hikes had done their job, and it held the Selic rate at 10.75 percent, ending a tightening cycle that began in April.
But with the economy barely slowing in the second quarter from its breakneck pace of the first, the government might need to slow things down more next year to prevent inflation from speeding too far above the official target of 4.5 percent, plus or minus 2 percentage points.
Brazil's growth could also put it on pace to move up the ranks of world economies. Already, a slew of politicians have said the country could become the world's fifth-biggest in coming years, from its current ranking at eighth, according to the International Monetary Fund.
The economic growth of recent years has brought millions of people out of poverty and boosted the widespread popularity of Lula, who will leave office on Jan. 1, 2011.
His candidate in the Oct. 3 election, Rousseff, is closely identified with his policies, and some polls predict she'll be elected in the first round of voting.
For details on the IBGE's GDP figures see: http://www.ibge.gov.br/home/presidencia/noticias/noticia_visualiza.php?id_noticia=1705&id_pagina=1 (Additional reporting by Rodrigo Viga Gaier and Stuart Grudgings in Rio de Janeiro and Vanessa Stelzer and Samantha Pearson in Sao Paulo, Editing by Todd Benson, W Simon, Leslie Adler and Dan Grebler)
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