Brazil’s Economy Unexpectedly Quickens in 3rd Quarter

By Joshua Goodman and Andre Soliani

Dec. 9 (Bloomberg) -- Brazil’s economic growth unexpectedly accelerated in the third quarter to the fastest pace in four years, driven by construction, manufacturing and consumer spending.

Gross domestic product jumped 6.8 percent from a year earlier, more than any of the 31 economists in a Bloomberg survey expected, from a revised 6.2 percent increase in the previous three months. Brazil’s $1.3 trillion economy grew 1.8 percent from the second quarter, the national statistics agency said today in Rio de Janeiro.

Latin America’s largest economy has since cooled, with companies slashing jobs and sales forecasts in anticipation of slower demand and tightening credit next year. Morgan Stanley expects the economy to soon enter a technical recession, as defined by two consecutive quarters of negative growth, for the first time since 2003.

“The third-quarter figures don’t reflect what happened to the economy in the past two months, when the credit crunch affected the country,” Roberto Padovani, chief economist at WestLB AG in Sao Paulo, said in a telephone interview. “Growth will probably slow to 2 percent, 2.5 percent next year.”

Yields on Brazil’s interest-rate futures contracts rose as investors bet the strong growth report reduces the chance of a central bank rate cut in the months ahead. The yield on the overnight futures contract for January 2010 delivery rose for the first time in eight days, advancing 15 basis points to 13.27 percent at 7:16 a.m. New York time.

Job Cuts

Brazil’s automobile industry, which contributes 5 percent of GDP, has trimmed 500 jobs since the crisis began and carmakers such as Fiat Spa and General Motors Corp. have given thousands of workers early vacations. To fill the gap left by scarce credit, the federal and state governments have pledged 8 billion reais ($3.2 billion) to the financial arms of carmakers who saw sales plunge 25 percent in November, the biggest drop in five years.

“The third quarter report is on investors’ backburner,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento SA, said in a phone interview before the report’s release. “Nobody thinks there will be any good economic news in the coming months.”

Even as the economic outlook worsens, annual inflation, at 6.39 percent, remains near the 6.50 percent upper limit of the government’s target band. Given the uncertainty on prices triggered by a three-month, 29 percent slide in the local currency, Brazil’s central bank will leave its benchmark interest rate unchanged at 13.75 percent tomorrow, according to 44 of 46 economists in a Bloomberg survey.

Policy makers will wait until next year to start cutting rates, Padovani said.

To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net