Brazil GDP stronger than expected

Brazil GDP stronger than expected

Brazil’s economy grew by 3.3% year-on-year in the second quarter, according to official new state figures.

The Instituto Brasileiro de Geografia e Estatistica (IBGE) also said that the economy grew by 1.5% in the quarter from the previous one.

That number was above economists’ predictions of 0.9%.

Finance Minister Guido Mantega earlier this month reduced 2013 growth targets to 2.5% from an already reduced 3.0%, and for 2014 down to 4.0% from 4.5%.

The agricultural industry, which saw production surge 3.9%, was responsible for most of the growth in Latin America’s biggest economy between April and June, following on from 9.7% growth in the first quarter.

The sector’s performance was mainly due to soy production, which rose by 23.7% compared with the second quarter of 2012.

Meanwhile, corn production grew by 12.2%, beans rose 8.4% and rice production increased 2.9%.

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Robert PlummerBusiness reporter, BBC News

The Brazilian government and the business community will both take heart from the latest growth figures, which indicate that this year’s overall performance is still set to outshine the lacklustre showing of 2012.

Last year’s growth figure of just 0.9% prompted Brazilian media to coin a new word, Pibinho (little GDP). It was a far cry from 2010’s high-water mark of 7.5% growth.

Now the economy, led by a boom in agriculture, is recovering. Analysts believe that Brazil and its fellow Brics are now set for a period of permanently lower growth as China’s demand for commodities wanes, but this year should see Brazil come close to matching 2011’s growth of 2.7%.

In the longer term, however, much is still to be done. There is little point in growing more food if Brazil’s roads and ports won’t allow it to reach consumers. The blackout that hit dozens of north-eastern cities on Wednesday is a reminder that the country’s infrastructure remains precarious, even as the 2014 World Cup looms.

Manufacturing expanded at a rate of 2% during the same period, but the service sector grew by just 0.8%.

The second-quarter figures were welcomed by Brazil’s currency markets, as the real gained 0.8% to 2.3507 to the US dollar.

The real has lost 20% of its value against the dollar since the start of the year.

The fall has been blamed on an outflow of capital, triggered by expectations that the US Federal Reserve will end its stimulus policy, leading to a stronger dollar.

Earlier this week, Brazil raised its benchmark interest rate to 9% from 8.5% in its latest attempt to rein in inflation.

The fall in the value of Brazilian real has stoked inflation, currently 6.15%.

The central bank’s monetary policy committee, the Copom, voted unanimously for a third straight half-percentage-point rate rise.

The Copom left the door open for more hikes by reiterating that the latest rise was part of a continuing rate-adjustment process.

Higher interest rates would help Brazil control inflation and also bolster investors’ confidence, the International Monetary Fund said in a report on Wednesday.

David Rees, emerging markets economist at Capital Economics, said: “Strong second-quarter GDP growth and further signs of rebalancing in the Brazilian economy are good news.

“But with consumption set to remain weak and domestic savings low, we continue to expect GDP growth to fall short of the 5% rates observed in recent years.”