Brazil Q2 GDP up 5.4 yr-on-yr, up 0.8 pct vs Q1

Sep 12, 2007 - Brazil's economy grew less than expected in the second quarter, held back by a slowdown in the services sector and a fall in government spending, but economists expect surging investments to fuel faster growth.

Gross domestic product, the broadest measure of a country's output of goods and services, grew 0.8 percent from the first quarter and 5.4 percent from a year earlier, national statistics agency IBGE said on Wednesday.

The economy, Latin America's largest, was expected to have grown 1.2 percent from the first quarter and 5.8 percent from the second quarter of 2006, according to median estimates in a Reuters survey.

"I wouldn't take this as an indication the economy is growing too little," said Mauricio Oreng, an economist at Itau Corretora in Sao Paulo. "I'd read this (quarterly) GDP data with some caution because it implies 3.2 percent annualized growth that doesn't reflect the real economy."

Expansion in services slowed to 0.7 percent from 1.7 percent in the previous quarter, while Brazil's industry grew 1.3 percent quarter-on-quarter, accelerating from a 0.4 percent rate of expansion in the first three months of the year.

The agricultural sector, often referred to as the green anchor of the Brazilian economy, grew 0.6 percent, rebounding from a 4 percent decline in the previous quarter.

INVESTMENT GROWTH

Government spending grew 0.2 percent, slowing sharply from 2.7 percent in the first quarter.

Capital investments in things like machinery, factories and infrastructure grew 3.2 percent quarter-on-quarter after expanding 2.7 percent in the first quarter.

"Capital investments show a strong trend. That's good for more sustained growth going forward," Oreng said.

Household spending rose 1.5 percent as real wages climbed, the government boosted the minimum monthly salary and declining borrowing costs made consumer credit more accessible.

GDP grew a revised 0.9 percent in the first quarter from the fourth quarter of 2006, while year-on-year growth in the first quarter was revised to 4.4 percent from 4.3 percent.

Economists expect revisions later this year will show higher growth in 2007 as the IBGE receives more detailed data.

"It's probable also some future revisions will be made and improve this outcome, which wasn't bad because it indicates the pace of growth continues strong and consistent," said Alexandre Mathias, head of economic research at Unibanco Asset Management.

Brazil's economy expanded 3.7 percent in 2006 and is expected to grow 4.7 percent in 2007, according to the most recent central bank forecast. While those growth rates are above average for Brazil, they still lag emerging market peers like India and China.