Brazil GDP Growth Slows in Q2

Brazil's economy expanded at a softer pace in the second quarter as a strong currency fueled a flood of cheap imports and industrial activity turned sluggish., WSJ 9/6/2011 11:28:40 PM

Gross domestic product grew 3.1% in the second quarter from the same period a year ago, the Brazilian Geography and Statistics Institute, or IBGE, said on September 2. GDP expanded 0.8% compared with the first quarter of this year.

The second-quarter figures show that Latin America's largest economy is reacting as expected to a series of interest-rate increases and other measures implemented by the government in late 2010 and early 2011, designed to contain inflation by reining in access to credit. But the softer pace to growth has the government and economists lowering expectations for GDP expansion in 2011.

Despite the downward trend in Brazil's economy over recent quarters, the IBGE data showed hidden areas of strength. Economic-activity levels in nearly all of the sectors measured by the GDP survey have climbed above the robust levels reached in the second quarter of 2008, right before the financial crisis struck, said Rebeca Palis, an IBGE economist. The lone holdout is Brazil's industrial sector, which is operating at historically elevated levels but still a smidge below the pre-crisis peak, she added.

The country's massive industrial segment has struggled with a surge in cheap imports, which have flooded into Brazil because of the strength of the real currency. The real has gained more than 10% against the U.S. dollar over the past 12 months. Imports were up 14.6% year-on-year in the second quarter versus 6.1% growth in exports, the IBGE said.

More important, the slower growth pace does not support the surprising interest-rate cut made earlier this week, BES Investimentos said. The central bank cut its benchmark Selic rate a half-percentage point to 12.0%, citing the need to stimulate the economy ahead of an expected global recession.

Brazil GDP Growth Slows in Q2