UPDATE 2-Brazil’s economy surges on investment, industry

* Brazil Q1 GDP grows 2.7 pct from Q4 vs 2.5 pct forecast

* Economy expands 9 percent from year-ago period

* Analysts see growth cooling but remaining robust
(Recasts, adds comments, market reactions)

By Luciana Lopez

SAO PAULO, June 8 (BestGrowthStock) – Brazil’s booming economy grew
at its fastest clip in at least 14 years in the first quarter,
beating expectations and signaling robust growth for 2010 in
contrast to the struggling European and U.S. economies.

Brazil’s economy, Latin America’s largest and the world’s
eighth-biggest, grew a whopping 9 percent in the first quarter
(BRGDPY=ECI: ) compared with a year earlier, the swiftest pace
since at least 1996, the government said on Tuesday.

It had been expected to rise 8.4 percent, according to the
median forecast of 18 analysts polled by Reuters. Estimates for
year-on-year growth ranged from 6 percent to 9.2 percent.

Compared to the fourth quarter of last year, Brazil’s
economy grew 2.7 percent in the first quarter (BRGDP=ECI: ),
beating a median forecast of 2.5 percent. That was the fastest
pace since the first quarter of 2004, pulled up by robust
capital spending and industrial growth.

The torrid growth, which has fueled concerns of
overheating, is expected to cool in the coming months as higher
interest rates and the withdrawal of government tax breaks take
effect. But analysts said Tuesday’s figure suggested growth
would remain healthy for the rest of the year and ahead of
October’s presidential election.

“These figures are confirmation of what the market was
talking about, a strong first quarter with very strong domestic
demand despite the weak external sector,” said Pedro Tuesta,
senior Latin America economist at research firm 4Cast Inc in
Washington.

He said that was why most economists did not believe
Europe’s debt troubles would be of much importance to Brazil.

Brazil’s vast consumer market is driving brisk growth at a
time when traditional powerhouses like the United States and
Europe are struggling to get back on track.

Among the sectors posting strong growth were capital
spending, surging 7.4 percent on a quarter-on-quarter basis;
industry, up 4.2 percent; and agriculture, up 2.7 percent, the
government’s statistics agency IBGE said.

Underscoring the strength of Brazil’s economy, the IBGE
also revised GDP figures for previous quarters higher. The
agency said the economy grew 2.3 percent in the fourth quarter
over the third, compared to a previously reported 2 percent.

Third-quarter growth came in at a revised 2.2 percent, from
a previously-reported 1.7 percent, over the second quarter.

That stronger basis of comparison made the first-quarter
expansion all the greater.

The benchmark Bovespa stock index (.BVSP: ), which has seen
choppy trading recently on worries about the global economy,
advanced on opening.

Yields on interest rate futures contracts (0#DIJ:: ) rose, as
well, as investors saw the data as raising the likelihood of
higher interest rates in coming weeks.

FIRST QUARTER KEY

Some analysts believe Brazil’s economy is overheating and
cannot sustain such lofty growth rates without stoking
inflation, which has picked up sharply in recent months.

Government tax breaks on cars and domestic appliances that
helped lift Brazil out of a shallow recession last year were
still in place in the first quarter, even as the rebounding
economy gathered steam.

“This strong rate of growth suggests a good performance for
further quarters, because this rate is difficult to cool
quickly,” said Silvio Campos Neto, the chief economist for
Banco Schahin. “But the (future) rates will be a little lower,
even on the basis of the high comparison.”

The International Monetary Fund now ranks Brazil, once a
chronic underperformer, as the world’s eighth biggest economy.

The economic expansion is likely to benefit President Luiz
Inacio Lula da Silva’s candidate in October’s presidential
election, Dilma Rousseff of the ruling Workers’ Party. Rousseff
is rising in the polls partly because voters associate the boom
with Lula, whose policies she has vowed to continue.

The GDP figures precede Wednesday’s release of inflation
data and a central bank interest rate decision.

On Wednesday morning, the IBGE will release benchmark IPCA
consumer price index data for May. Analysts in a Reuters poll
predicted a median increase of 0.43 percent. The index rose
0.57 percent in April. [ID:nN07262058]

The central bank uses the IPCA to guide interest rate
decisions, and on Wednesday evening, the bank is expected to
raise its benchmark interest rate in its latest attempt to cool
the economy.

Policymakers hiked the rate, called the Selic, to 9.5
percent from 8.75 percent in April, and most analysts surveyed
by Reuters expect another 0.75 percentage point hike to 10.25
percent this week. [ID:nSPG002929]

For details on the IBGE’s first-quarter GDP figures see:
http://www.ibge.gov.br/home/presidencia/noticias/noticia_visualiza.php?id_noticia=1631&id_pagina=1

Stock Market Money
(Reporting by Rodrigo Viga Gaier and Stuart Grudgings; Writing
by Luciana Lopez; Editing by Andrea Ricci)

UPDATE 2-Brazil’s economy surges on investment, industry