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UPDATE 2-Brazil GDP slips as second COVID-19 wave stalls recovery

reuters.com · 09/01/2021 08:38
UPDATE 2-Brazil GDP slips as second COVID-19 wave stalls recovery

Adds comments from central bank chief, ministry official

By Marcela Ayres

- Brazil's economy contracted by 0.1% in the three months to June, government statistics agency IBGE said on Wednesday, stalling more than expected as a second wave of the pandemic hurt demand.

The decline in Brazil's gross domestic product from the prior quarter was worse than the median forecast for 0.2% growth in a Reuters poll and marked a sharp slowdown from 1.2% growth in the first quarter.

The setback for Brazil's economic rebound came as a severe second wave of COVID-19 cases triggered restrictions in major cities during April and May, weighing on household consumption and manufacturing.

Still, more government spending and services activity helped avoid a wider downturn, offsetting a drop in fixed investments and weaker agricultural output during a weak coffee harvest.

Inflation has also surged during the recovery, triggering aggressive interest rate hikes by the central bank and weighing on the outlook for next year, when President Jair Bolsonaro faces an uphill battle to win re-election.

Central bank chief Roberto Campos Neto told lawmakers that the latest GDP data could lower the market consensus outlook for growth this year.

"With today's number, we think there may be a slight downward revision. Let's see," he told a congressional hearing.

However, the Economy Ministry's annual forecast is unlikely to change and Brazil's economy is still expected to grow more than 5% this year, Economic Policy Secretary Adolfo Sachsida told Reuters.

As vaccination rates gather steam and coronavirus cases continue to fall, the consensus in a weekly central bank poll of economists climbed as high as 5.3% GDP this month before settling at 5.2% in the latest poll.

Despite the stagnation in the second quarter, activity was 12.4% higher than a year earlier, when the onset of the pandemic hammered Brazil's economy. Economists had expected a 12.8% rise.

Central bank sources have told Reuters that they are aware that Bolsonaro has been unhappy about a recent law reinforcing the independence of the central bank, but he had not applied any direct pressure on monetary policy. The bank's policymakers have also voiced indirect criticism of his efforts to raise public spending to win votes.

(Reporting by Marcela Ayres in Brasilia;
Additional reporting by Camila Moreira in Sao Paulo and Rodrigo Viga Gaier in Rio de Janeiro;
Writing by Brad Haynes
Editing by Daniel Flynn and Mark Porter)

((brad.c.haynes@tr.com; +55 11 5644 7725; Reuters Messaging: brad.c.haynes.thomsonreuters.com@reuters.net))