--Brazil's gross domestic product grows at
slowest pace in more than two years
--Country's massive agriculture sector
shrinks in first quarter; industry stagnates
--Latin America's largest economy joins other
emerging markets, succumbs to global malaise
(Updates with comment from U.S.
asset-management company Blackrock Inc.'s Will Landers in sixth, seventh paragraphs)
By Jeff Fick
Of DOW JONES NEWSWIRES
RIO DE JANEIRO (Dow Jones)--Brazil's economy
grew at its slowest pace in more than two years in the first quarter as weak
industrial production and a drought-wracked agricultural sector undermined
growth in Latin America's largest economy.
Brazil's gross domestic product expanded 0.8%
in the first quarter, compared with the first quarter of 2011, the Brazilian
Institute of Geography and Statistics, or IBGE, said Friday. That was less than
economists' forecasts for 1.34%, and the economy's worst performance since
contracting 1.5% in the third quarter of 2009. Brazil's GDP also advanced 0.2%
in the first quarter compared with the fourth quarter, matching the revised
growth of 0.2% registered in the fourth quarter.
The latest growth figures showed Brazil
joining the ranks of other emerging-market powerhouses that are succumbing to
the ongoing European debt crisis and a sluggish U.S. recovery. Brazil, China,
Russia and India, the so-called BRICs, helped lead the global economy out of
recession in the wake of the 2008 financial crisis but have struggled recently.
Brazil's central bank has worked feverishly
to counter the impact of the global turmoil on the local economy. Interest
rates were slashed to record-low levels earlier this week, while the government
has implemented a series of tax cuts and credit measures aimed at stoking
domestic demand.
Despite the moves, officials have reined in
expectations for economic growth in 2012. Finance Minister Guido Mantega told
the Wall Street Journal earlier this week that the economy will grow 3% this
year. That was down from previous expectations for 4.5% growth. In 2011,
Brazil's economy expanded 2.7%, down from a stunning 7.5% surge in 2010.
Investors from abroad received the new data
with caution. Brazil's "weaker than expected GDP figures are a concern for
investors," said Will Landers, of U.S. hedge fund manager Blackrock.
"People investing in Brazil are mostly looking for growth, and a return to
growth has been slower than forecast."
However, this weak economic activity puts to
rest anyone's doubts about whether the central bank was correct to start cutting
rates early on in August last year, and it's precisely the interest-rate cuts
that should help with growth prospects in quarters to come, Landers said. With
strong employment and wage growth, along with falling interest rates, the
Blackrock executive said he has "no doubt that Brazil is well on its way
to returning to more attractive levels of growth--it may take a quarter or so
longer than what had been forecast."
In the first quarter, Brazil's massive
agriculture sector suffered through a drought that crimped output of
commodities such as soy, IBGE researcher Rebeca de La Rocque Palis said.
Agriculture shrank 8.5% year-on-year in the first quarter. Brazilian industry,
which accounts for about 30% of the country's economy, continued to stagnate
but did show signs of life in the quarter, Palis added. Industry advanced 0.1%
in the first quarter.
The service sector, meanwhile, expanded 1.6%.
"Economic growth in Brazil continued to
be driven by domestic demand, which represents 60.3% of the country's
GDP," Palis said. "Government spending also pushed [the first
quarter] expansion, accounting for 20.7% of the growth."
Family consumption increased 2.5%
year-on-year in the first quarter as Brazilians took advantage of record-low
unemployment, higher wages and greater access to credit. Government spending
also gained 3.4% in the period.
Fixed-capital formation, however, shrank 2.1%
year-on-year. Brazil's investment rate was 18.7% of GDP in the first quarter,
down from 19.5% of GDP in the same quarter of 2011.
In market value, Brazil's GDP was 1.03
trillion Brazilian reais ($512 billion) in the first quarter.
-By Jeff Fick, Dow Jones Newswires;
55-21-2586-6085; Jeff.Fick@dowjones.com
--Diana Kinch contributed to this article.
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