World Economy

Brazil GDP Fails to Convince Traders

Brazil GDP Fails to Convince TradersBrazil GDP Fails to Convince Traders

Brazil’s smaller-than-estimated contraction in the first quarter failed to convince traders Latin America’s largest economy is improving. The Ibovespa extended the worst monthly drop since January.

Gross domestic product contracted 0.2 percent in the first three months of the year, the national statistics agency said Friday. That was a better result than the median estimate of a 0.5 percent contraction from 42 economists surveyed by Bloomberg. Both consumer and government spending retreated.

“Let’s be honest: a decline of 0.2 percent or 0.5 percent would be equally bad,” Alvaro Bandeira, a partner at Orama Asset Management, which oversees 248 million reais ($78.7 million) in Rio de Janeiro, said by phone. “Investments and consumption are down. Prospects for Brazil are still very negative.”

Analysts in a central bank survey published Monday forecast the worst economic contraction since 1990 while boosting their estimates for Brazil’s inflation and the benchmark interest rate this year. The government has raised taxes and cut expenses to rein in the largest budget gap in 16 years and attempt to hang on to the country’s investment-grade rating.

The Ibovespa retreated 0.6 percent to 53,661.03 at 10:25 a.m. in Sao Paulo, bringing this month’s decline to 4.5 percent. The gauge is also set for a second week of losses.

Brazilian equities entered a bull market last month, after rallying more than 20 percent from their January low, on prospects for government spending cuts. Since then, the Ibovespa has fallen 5.2 percent on concern the economy would slow even further.

Lender Banco Bradesco SA contributed the most to the Ibovespa’s decline. Miner Vale SA slid as iron ore extended a two-day drop. Cyrela Brazil Realty SA led a rally among homebuilders after policy makers increased the amount of credit available for mortgages.

 Chinese Investments

Chinese Premier Li Keqiang’s recent visit to Brazil will lead to huge investments vital to boosting the South American country’s economy, local experts said.

Li’s visit is “very important” to Brazil, during which bilateral agreements were signed to benefit the latter in fields ranging from aviation, turing, electricity to mining and food processing, Paulo Wrobel, a research fellow with the BRICS Policy Center, said.

He told Xinhua Thursday that he was particularly impressed with China’s commitments to Brazil’s state-run oil firm Petrobras, among others.

“The investment in Petrobras, the resumption of Brazilian meat exports to China and the acquisition of the local bank BBM by a Chinese bank are all important news,” Wrobel said.

During his stay in Brazil, Li also announced the establishment of a special fund totaling 30 billion U.S. dollars to back up production capacity cooperation between China and Latin America.

Brazilian experts also spoke highly of the project of a transcontinental railway connecting Brazil’s Atlantic coast to Peru’s Pacific coast.