The Brazilian economy contracted 0.5 percent in the third quarter of this year compared with the previous one, the first such contraction since early 2009.
The announcement by the Brazilian Institute of Geography and Statistics was in line with the most pessimistic market expectations.
In the first quarter of 2009, Brazil’s GDP had contracted 1.6 percent.
Compared with the third quarter of 2012, the world’s seventh largest economy — and Latin America’s biggest — grew 2.2 percent, the institute said.
Finance Minister Guido Mantega said despite the “volatility” of the results, “the Brazilian economy is on a trajectory of gradual growth which should continue in the next quarters.”
He vowed that the fourth quarter would be positive and that it “is perfectly possible to post 2.5 percent growth” next year.
The GDP figures between July and September, when compared with the previous quarter, showed that the agribusiness sector retreated 3.5 percent while industry and services edged up 0.1 percent.
When compared from year to year, industry rose 1.9 percent and services 2.2 percent but agribusiness was down one percent.
Capital formation surged 7.3 percent while household consumption rose 2.3 percent.
?Although output picked up in the second quarter, the upturn in manufacturing partly behind this went into reverse in the third quarter,” said Robert Wood, Brazil analyst for The Economist Intelligence Unit.
He felt that this had contributed to a sequential decline in GDP in the third quarter on the order of 0.2 percent.
The Brazilian economy grew 1.8 percent in the second quarter over the previous one, exceeding market expectations.
“We expected negative growth in this third quarter, especially after the second quarter which brought an unusual pickup,” said Silvia Matos, an analyst with the Brazilian Economy Institute IBRE.
“This is not a recession, but it shows that we are returning to more modest growth, maybe a 0.5 percent advance in the next quarter, which would bring 2.3 percent GDP growth this year, a little worse than what we expected,” she told AFP.
“Probably it will be more modest in 2014: 1.8 percent expansion,” she noted.
Last year, the economy grew a mere one percent, according to revised data released Tuesday, following 2.7 percent growth in 2011 and a sizzling 7.5 percent in 2010.
This year market analysts are banking on a 2.5 percent expansion and 2.11 percent in 2014.
The government’s economic planners must simultaneously spur growth and rein in inflation, which in June reached 6.7 percent, above the 6.5 percent upper range of the official target.
Currently inflation hovers around 5.8 percent.
“The government allowed inflation to rise a great deal with a policy more focused on growth, with public spending. This left the fiscal part more fragile. Now it has little room for maneuver,” Matos said.
According to Wood, “Government intervention and weaker macroeconomic policy management have soured investor confidence and are contributing to Brazil’s relatively soft medium-term growth outlook.”
“Sentiment has been hit by the global emerging-markets sell-off, a weaker economic outlook for China and the impact on the policy environment of Brazil’s midyear mass street protests and the looming October 2014 (presidential) elections,? he added.
Still, President Dilma Rousseff is favored to win re-election in next October’s polls, which will be held three months after Brazil hosts the World Cup.
“The economy with moderate growth, inflation under control and a (low) jobless rate of 5.5 percent — these indicators are not so bad as to thwart her re-election although they do not guarantee it either,” said Ricardo Ribeiro, an analyst with MCM Consultores.