Brazil's economy shrinks 0.5% in the third quarter

Brazil flag Brazil's economy shrunk by more than expected in the third quarter

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Brazil's economy fell into contraction in the third quarter, with output shrinking by more than analysts had forecast, according to official state figures.

The Instituto Brasileiro de Geografia e Estatistica (IBGE) said that Brazil's economy shrank by 0.5% in the quarter, compared to the previous one.

Analysts had expected Brazil's economy to shrink by just 0.2%.

However, compared with the same quarter last year, the economy grew 2.2%,

The drop was mainly due to the performance of its agricultural industry, which shrank 3.5% between July and September compared with the previous three months.

The fall came after a strong second quarter, reflecting the main harvesting period.

Investment also fell, dropping by 2.2%.

Public spending was one bright spot, growing 1.2% in the period, but public officials have warned there is no room for more stimulus.

Forecasts downgraded

Economists said they planned to downgrade their forecasts for Latin America's largest economy following the official data.

Andre Perfeito, chief economist at Gradual Investimentos, said he would lower his projections for next year to 2.4% or 2.5% from 2.7%.

Similarly, Flavio Serrano, an economist at Espirito Santo investment bank, said he now expected growth for the full year to be closer to 2.2% or 2.3% than the 2.5% he had previously forecast.

"It shows that we were not able to grow despite various economic stimulus measures," he added.

The Brazilian economy grew 1.8% in the second quarter over the previous one, exceeding market expectations.

However, on an annual basis, growth has slowed. Last year, it posted only 0.9% growth after 2.7% in 2011 and 7.5% in 2010.

Brazil inflation and interest rates

Last week, Brazil's central bank raised its benchmark interest rate to 10% from 9.5%, the sixth time in a row that it had put up borrowing costs.

The latest rise, which took the key rate to the highest level since March 2012, came as part of efforts to curb persistently high inflation. Consumer prices in the country rose by 5.8% in October from a year earlier, above policymakers' 4.5% target.

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