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//article 1.002// Gross domestic product//article 1.002// expanded 0.

7 percent in the fourth quart er compared to the third quarter, the government statistics institute said on Th ursday. That was more than twice the amount expected by economists, and it pushe d the economy to 2.3 percent growth on an annual basis for the full year of 2013 . Such growth is a far cry from the dynamic 4 to 5 percent annual levels often see n last decade, when Chinese demand for commodities helped make Brazil a star amo ng //article 1.002//emerging markets. Poor infrastructure, high consumer debt an d sagging business confidence have brought Latin America's biggest economy back to earth since then, prompting fears of a long period of stagnant growth ahead, possibly for years to come. But Brazil's 2013 GDP growth was still more than twice as fast as Mexico, which has in recent years surpassed it as an investor favorite in the region. Meanwhile, a 6.3 percent jump in investment last year should over time help ease some of the bottlenecks holding the economy back. It will also give Rousseff a major calling card with business leaders as she tries to atone for policy //arti cle 1.002//errors early in her left-leaning presidency and convince them her sec ond term will be more market-friendly. "It's a good result, since there was more investment, and you could see a reduct ion in the mismatch between supply and //article 1.002//demand. It suggests the economy is growing with a better makeup than it was before," said Jankiel Santos , chief economist at Espirito Santo investment bank in Sao Paulo. Santos and other economists cautioned against getting carried away by optimism, though. Retail sales and industrial data suggest 2014 will be a tougher year, wi th several challenges including a severe drought and problems in neighboring Arg entina dragging on activity. Indeed, the data published on Thursday contained plenty of grist for both bulls and bears. On the positive side, household spending expanded 0.7 percent in the fourth quar ter compared to the third quarter, while government spending grew 0.8 percent. F or the full year, agriculture grew 7 percent compared to 2012, thanks to record sugar cane, soy and corn harvests. However, industry shrank 0.2 percent in the fourth quarter, dragged down by a 0. 9 percent fall in manufacturing. Brazil's factories have been struggling for yea rs with high labor costs, bad infrastructure and low productivity. PROBLEMS WITH INFLATION Brazil's economy had been expected to grow just 0.3 percent in the fourth quarte r, according to the median forecast of 43 analysts polled by Reuters. The quarterly result represented a strong rebound after the economy had contract ed 0.5 percent in the third quarter. Many economists believed that growth could have been negative again in the fourth quarter, which would have meant a recessi on. The rise in government spending was also a mixed blessing. While it helped boost the economy, loose fiscal policy has also pushed up inflation and raised the th reat of a credit downgrade by ratings agency Standard & Poor's. Elevated inflation has dented business and consumer confidence, prompting the ce

ntral bank to raise interest rates off record lows to 10.75 percent in a non-sto p cycle since April last year. It also eroded purchasing power, leading to the w orst year for retail sales in a decade.