November 27, 2015 / 2:22 PM / in 3 years

Brazil's economy tailspin seen at record speed in third quarter

BRASILIA (Reuters) - Brazil’s economy probably shrank at the fastest annual pace on record in the third quarter, crippled by a combination of government budget cuts, rising inflation and political gridlock, a Reuters poll showed on Thursday.

A man walks in Barra da Tijuca beach during the sunrise in Rio de Janeiro January 31, 2014. REUTERS/Ricardo Moraes

Gross domestic product in Latin America’s largest economy likely contracted 1.2 percent in the third quarter from the second BRGDP=ECI after seasonal adjustments, following a decline of 1.9 percent between April and June, according to the median forecast of 33 economists in the survey.

On an annual basis, Brazil’s GDP probably dropped 4.1 percent in the third quarter BRGDPY=ECI, the steepest decline since the beginning of the current data series in 1996.

More than a million people have lost their jobs in what is expected to be Brazil’s longest recession since the 1930s. With confidence at historic lows and investments at a standstill since the beginning of the year, economists have repeatedly lowered their forecasts and many warn the worst is yet to come.

“It is hard to see any improvement, even with powerful binoculars,” economists with consultancy MCM wrote in a note.

“It’s a dangerous, vicious cycle.”

Output probably shrank all across the economy in the third quarter, economists in the poll said.

Investments are expected to drop for a ninth straight quarter, and household consumption could fall by more than 1 percent quarter to quarter, wrote Rodrigo Miyamoto, an economist with Itau Unibanco Holding SA (ITUB4.SA).

A sharp currency devaluation might have helped by curbing imports, but not much, Miyamoto said. He estimated a net effect of about 0.7 percentage point in GDP growth as the Brazilian real plunged to a record low against the U.S. dollar.

Other emerging economies such as South Africa have struggled in 2015 with prospects of an interest rate hike in the United States and the gradual slowdown of the Chinese economy. But none suffered as dramatically as Brazil, which is on the brink of losing its hard-won investment-grade status as some of its leading companies and main political parties face serious trouble.

Current and former executives at heavyweights such as oil company Petroleo Brasileiro SA (PETR4.SA), investment bank BTG Pactual SA BBTG11.SA and engineering group Odebrecht SA [ODBES.UL] are in jail for allegedly participating in a corruption scheme with senators and deputies from President Rousseff’s coalition.

The bribery scandal has blacklisted major conglomerates from government work, freezing public works and forcing several to downsize operations.

Editing by Jeffrey Benkoe

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