UPDATE 2-Brazil GDP grows, ends two-quarter recession

Published: 13 Sep 2009 16:44:21 PST

* Q2 GDP rises better-than-expected 1.9 percent over Q1

* Growth lifts Brazil out of two-quarter recession

* Economy contracts 1.2 percent year-over-year (Adds context, economist comments)

SAO PAULO, Sept 11 - Brazil made a stronger-than-expected exit from recession in the second quarter, government data showed on Friday, returning to growth after a two-quarter slump in Latin America's largest economy sparked by the global financial crisis.

Brazil's gross domestic product grew a better-than-expected 1.9 percent from the previous quarter signalling the economy is bouncing back at a robust pace.

GDP had been expected to grow 1.6 percent quarter-on-quarter, according to the median forecast of 20 analysts polled by Reuters. Estimates for growth had ranged between 0.7 percent and 2.2 percent.

Gross domestic product had fallen 1 percent in the first quarter of 2009, a revision from the previously-reported 0.8 percent decline. That contraction was a second straight quarter of slumping GDP that put the economy in a technical recession.

But Brazil's economy has since shown signs of a robust recovery, even as other major economies are struggling to emerge from recession. Analysts say the economy was shielded from a deep recession by the country's solid banking system, and has been boosted by a series of government tax breaks and sharp cuts in interest rates.

Household consumption rose 2.1 percent in the second quarter, suggesting that tax breaks on home appliances and cars helped stoke domestic demand.

Capital spending, in contrast, was unchanged in the same period.

"The data on consumption was good, and, even though the figures on investments were worse than expected, we're talking about an interruption of an abysmal slump the last quarters," said Zeina Latif, chief Brazil economist at ING in Sao Paulo. "The resumption of investments is essential to sustain the expansion."

Finance Minister Guido Mantega said last month that the economy was already growing at a pace of 4 percent at the beginning of the third quarter. He predicted growth of 1.8 to 2 percent in the second quarter.

Industrial output rose more than expected in July, helped by tax breaks to key construction, automobile and home appliances industries. Retail sales volumes also rose in June as monetary easing and an improvement in the labor market inspired consumers to spend.

Brazil's emergence from recession is a welcome boost for President Luiz Inacio Lula da Silva, who wants Brazilians to elect his Chief of Staff Dilma Rousseff to succeed him in the October 2010 elections.

Rousseff, who does not share Lula's huge popularity, is trailing in early opinion polls and could use all the help possible from a resurgent economy.

YEAR-ON-YEAR SLUMP

Year-on-year, Friday's figures showed the economy contracted 1.2 percent, better than the 1.5 percent retreat that was the median Reuters poll forecast, with estimates for the contraction ranging from 0.6 percent to 2.2 percent.

That's largely because of a revised decline of 3.4 percent in GDP the fourth quarter of 2008, when the impact of the global economic crisis hit Brazil hard.

The global financial crisis that hit Brazil last year gate-crashed a five-year economic boom that had pulled millions out of poverty and created a new class of low-income consumers hungry for their first refrigerator, car or apartment.

But consumer confidence, demand for credit, and the Sao Paulo stock market have risen to near pre-crisis levels a year ago, helped by the tax breaks, interest rate cuts and the relatively few job losses.