Brazil's economy grew strongly for much of last year -- but then had its legs knocked out from underneath it when the global crisis struck, according to official data released Tuesday.
Gross domestic product for all of 2008 expanded 5.1 percent, reaching 2.9 trillion reals (1.25 trillion dollars) and confirming Brazil's position as the biggest economy in Latin America.
But GDP fell 3.6 percent in the fourth quarter of last year from the previous quarter, the largest such decline since 1996, the Brazilian Institute of Geography and Statistics (IBGE) said.
The investment rate grew 19 percent last year and was the highest since IBGE began calculating it in 2000.
Those boom times are going to contrast dramatically with Brazil's performance this year, when economists expect GDP to grow just 1.3 percent.
They have repeatedly revised downwards their projections in recent weeks.
The country appears likely to escape recession, but the outlook is gloomy.
Industrial output in January slumped a record 17.2 percent compared to the same month last year.
"The sector has suffered a very hard blow," said Elson Teles, an analyst with the Concordia consulting firm.
Car production picked up slightly in January and February, but was still much lower than before the crisis, and sales remained flat despite 3.5 billion dollars in state incentives for consumers.
Against this background, the Brazilian central bank is mulling whether to cut rates further to cushion the blow from the crisis.
In January, the bank slashed one percentage point off its reference Selic rate to 12.75 percent.
The bank has been reluctant to cut the rate -- still among the world's highest in real terms -- because of the constant threat of inflation in Brazil.
Inflation is currently running at 5.84 percent, at the high end of the bank's target range of 3.5 to 6.5 percent.
Brazil's currency, the real, has lost more than 30 percent against the US dollar since the start of the global crisis, prompting the central bank to burn through 14 billion dollars of its reserves to shore up funds.
With indicators showing continued deterioration, many in the market predicted another interest rate cut would be announced this week.
Miguel Jose Ribeiro, of Brazil's Association of Financial Executives, said he expected a one-percentage-point cut, "but I wouldn't be surprised if the cut is bigger.
"The indicators show we could have a very strong fall in economic activity" in 2009, he added.
President Luiz Inacio Lula da Silva has said the beginning of 2009 would be tough, but with characteristic optimism, he predicted that Brazil's economy would turn around starting in April.
Copyright 2009 AFP Global Edition
