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SAO PAULO, Dec 1 (Reuters) - A long-awaited rebound in capital spending extended Brazil’s recovery into the third quarter, adding to signs that Latin America’s largest economy is turning the corner after its deepest recession in a century.
Sharp upward revisions to prior figures and signs of improving economic health are likely to drive economists to raise their gross domestic product (GDP) forecasts, heralding the next stage of the rebound.
Gross domestic product grew 1.4 percent from the third quarter of 2016, government statistics agency IBGE said on Friday, above the median estimate of 1.3 in a Reuters poll of economists.
Growth versus the prior quarter slowed to 0.1 percent, after an upwardly revised 0.7 percent expansion in the second quarter, according to the IBGE data.
“The deceleration does not tell a story of easing momentum. On the contrary, we’ve confirmed a pickup in investments and household spending remains robust,” Banco Pine economist Marco Caruso said.
“Overall, this is a positive reading and I expect to see positive revisions to growth estimates in coming days.”
With interest rates near all-time lows, investments in new machinery, facilities and inventories rose 1.6 percent from the prior three months, the fastest pace since the second quarter of 2013.
That may finally vindicate policymakers who for years had promised an investment-led rebound in the roughly $1.8 trillion economy, only to be frustrated by high corporate debt loads and idle capacity.
As Brazil cuts interest rates toward all-time lows, firms have found it easier to cut debt and fund expansion plans. Efforts to privatize public airports and highways also began to bear fruit in the quarter.
The reading puts Brazil, the world’s ninth largest economy, in an enviable position compared to more developed countries, which have struggled to foster investments since the financial crisis amid stubbornly low productivity.
Surging investment accompanied steady household spending, the biggest driver of Brazil’s gradual recovery to date.
Consumer spending rose 1.2 percent, the same pace as in the second quarter, suggesting that an expired government measure to let workers make early withdrawals from a severance fund was not primarily responsible for strong demand this year.
A Reuters poll in October forecast that Brazil’s GDP would grow 0.7 percent in 2017 and 2.3 percent in 2018. Should those expectations hold, the Brazilian economy is set to outpace Mexico’s economy for the first time in five years.
Santander Brasil economist Rodolfo Margato said Thursday’s figures may drive him to revise up his 2017 growth forecast to 1 percent from 0.8 percent.
“We’ve seen important growth in local demand, continuing improvement in household spending and a positive reading on investments, which should ease concerns over the outlook for 2018,” he said.
Economists warned, however, that maintaining a steady pace of growth will hinge on policymakers’ ability to curb growth of public debt, cut red tape and loosen regulations.
While President Michel Temer has pursued some belt-tightening efforts, including an unpopular proposal to trim social security, the burden of reforms will likely fall to the winner of next year’s presidential election.
But with Temer’s approval rating in single digits, campaigning to continue his reforms may be a tough sell. (Additional reporting by Rodrigo Viga Gaier in Rio de Janeiro and Camila Moreira in São Paulo; Editing by Daniel Flynn and Bernadette Baum)
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