Brazil GDP Rises in Second Quarter -- Update

By Paul Kiernan Features Dow Jones Newswires

Brazil's economy posted a second consecutive quarter of growth on the back of a rebound in consumer spending, reinforcing hopes for a recovery from the country's deepest recession on record.

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Brazil's gross domestic product expanded 0.2% in the second quarter from the first in seasonally adjusted terms and 0.3% from the year-ago period, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday. That was slightly better than expected, as the median estimate from economists surveyed by the local Agência Estado newswire was for GDP to remain flat against the first quarter.

Demand was buoyed by a 1.4% quarter-on-quarter rise in consumer spending. Economists think this was largely due to the government's decision to allow some 30 million workers to withdraw around $14 billion from the federal unemployment insurance fund this year in an effort to rekindle growth. The lowest inflation since 1999, and a corresponding decline in interest rates, also helped free up disposable income, they say.

But the data left plenty of questions open as to whether Brazil's recovery will continue, and if so, at what pace.

Public-sector spending declined for a fourth consecutive quarter as Brazil's government continued to grapple with a massive budget deficit that the Finance Ministry expects will take years to plug. Meanwhile, investment, as measured by gross fixed capital formation, contracted for the 14th time in 15 quarters, suggesting companies remain skeptical of the economy's prospects.

Brazil's GDP shrank 7.8% in 2015 and 2016, marking the deepest economic downturn in more than a century, according to official estimates. Economists surveyed by Brazil's central bank expect GDP to grow 0.4% in 2017 and 2% next year.

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Some economists saw a silver lining in the fact that growth continued in the second quarter despite renewed political turmoil as President Michel Temer faced corruption allegations.

"The pace of consumption growth won't be sustained, but by the same token it's debatable how much further investment can fall," said Neil Shearing, chief emerging markets economist at Capital Economics, noting that investment has plummeted by 30% from its level before the recession. "The big picture here is that there is no sign that the latest political crisis has derailed the recovery."

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

September 01, 2017 09:43 ET (13:43 GMT)