September 2, 2011 / 12:41 PM / 8 years ago

UPDATE 5-Brazil's growth slows despite resilient consumers

 * GDP slows as Brazil faces global economic headwinds
 * Follows shock central bank move to slash interest rates
 * Slowdown may leave Brazil behind rivals India, China
 (Recasts with sector changes, adds investor quote, updates
market changes)
 By Brian Ellsworth and Brad Haynes
 RIO DE JANEIRO/SAO PAULO, Sept 2 (Reuters) - Brazil's
economy slowed in the second quarter on weakening in the
agricultural and industrial sectors, possibly signaling a
sharper slowdown in coming months as its boom fades.
 But Latin America's largest economy kept growing strongly
in some sectors, raising doubts among economists that the
central bank's surprise move to slash interest rates this week
may have been premature as inflation hovers above 7 percent.
 Signs have grown that the economy has entered a sharper
slowdown in recent weeks as a weaker global economy exacerbates
a deceleration in Brazil after its breakneck -- and
unsustainable -- expansion of 7.5 percent last year.
 The central bank shocked investors this week by slashing
interest rates by 50 basis points to 12 percent, citing a
"substantial deterioration" in the international outlook as the
United States and Europe struggle with debt and anemic growth.
 Gross domestic product in Latin America's largest economy
grew 0.8 percent from the previous quarter after a 1.2 percent
expansion in the first three months of the year, the statistics
agency IBGE said on Friday. That was in line with the median
forecast of 17 analysts in a Reuters poll.
 "The number still shows an economy growing above its
capacity. It's a reasonable (growth) rate," said Zeina Latif,
Latin America economist with RBS Securities. But, she added,
"there will be a stronger slowdown."
 Brazil inflation, GDP graphic
 Factbox on Brazilian interest rates:       [ID:nN20153016]
 Brazilian interest rates:
 GDP grew 3.1 percent compared with a year earlier, down
from 4.2 percent in the previous quarter. Consumers, backed by
record employment, continued to spend briskly.
 Consumer spending, which makes up about 60 percent of the
economy, rose 1.0 percent from the previous quarter, speeding
up from 0.7 percent in the first three months.
 Slower growth may let policymakers advance two key goals --
bringing down nagging inflation and further easing lofty
interest rates.
 But it also signals that Brazil, which has been a rare
bright spot in the struggling global economy, risks falling
behind fellow fast-growing emerging markets such as China and
India. It could face further weakening of corporate profits and
a continued slump in the Bovespa stock index .BVSP that is
already one of the world's weakest markets this year.
 Finance Minister Guido Mantega said Brazil was likely to
maintain strong economic growth despite a weaker international
outlook, forecasting solid growth in both 2011 and 2012.
 "Brazil can sustain growth, as of next year, at around 5
percent," he said, putting this year's growth at 4 percent.
Many analysts have been downgrading their forecasts and are
projecting growth this year will be closer to 3 percent.
 The Bovespa index was down 2 percent in afternoon trading,
tracking a 1.8 percent slump in the Dow Jones Industrial
Average. Brazil's currency, the real BRBY, slipped against
the dollar in line with weak foreign markets.
 Growth was dragged down by a 0.1 percent quarter-on-quarter
slump in the country's powerful agricultural sector, a key
element in its export earnings, compared with 3.0 expansion in
the first quarter.
 Industry posted meager 0.2 percent growth compared with a
more robust 2.2 percent increase in the prior three months.
 Factors helping expansion included a 1.7 percent increase
in investment and a 1.2 percent growth in government spending.
 Some analysts said they had expected a more drastic
slowdown after the central bank's surprise interest rate cut,
questioning whether the easing could aggravate inflation, given
the resilience of consumer spending. The bank's first rate cut
in two years raised suspicions in some quarters that it had
caved into government pressure to prioritize growth over
bringing inflation back to its target of 4.5 percent.
 "The numbers showed a slight deterioration, but investors
were probably looking for more negative data that could justify
the dramatic shift in the stance of monetary policy that we saw
this week," said Mohamed Mourabet, who oversees 1.2 billion
reais ($740 million) in assets with Sao Paulo-based hedge fund
Victoire Capital.
 Still, a number of recent indicators have pointed to a
gathering slowdown. Brazil's industrial output in July fell shy
of expectations.
 This week, Brazil's main steel industry group cut its
forecast for 2011 steel output and Brazil's largest airline,
TAM TAMM4.SA, said it was reducing its projected fleet at the
end of 2012 because of "a more modest market" than expected.
 (Additional reporting by Raymond Colitt in Brasilia, Guillermo
Parra-Bernal in Sao Paulo and Stuart Grudgings and Rodrigo Viga
Gaier in Rio de Janeiro; Editing by Stuart Grudgings and Dan

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