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Brazil Downturn Hurts Rousseff Election Hopes -- 4th Update

Brazil Downturn Hurts Rousseff Election Hopes -- 4th Update


 By Luciana Magalhaes And Rogerio Jelmayer 

SÃO PAULO--Brazil's economy fell into a technical recession in the second quarter and cut its growth forecast for 2014, delivering another blow to President Dilma Rousseff's re-election hopes just five weeks before voting starts.

Brazil's gross domestic product shrank 0.6% in the second quarter, compared with the previous three months, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday. The IBGE also revised its data for the first quarter, saying GDP in the first three months of the year dropped 0.2%.

That means economic output in Latin America's largest economy has now declined for two straight quarters, meeting economists' conventional definition of a recession. The downturn hits Brazil ahead of presidential elections in October, where Ms. Rousseff is already trailing Socialist Party candidate Marina Silva in some polls.

Ms. Silva only entered the race earlier this month--after her party's original candidate died in a plane crash--but has picked up support from voters disappointed by Ms. Rousseff's failure to address social and economic issues. Her economic agenda, albeit vague, has also resonated with investors and businessmen who feel the current administration hasn't done enough to boost growth.

Brazil's industrial activity fell 1.5% in the second quarter and investment dropped 5.3% compared with the first quarter. Output in every sector of the economy, except agriculture, contracted.

After the data was announced, Finance Minister Guido Mantega said the government would now have to cut is forecast for the full year. "We're working with [a forecast for growth] of 1.8%, but we can't achieve that anymore and we'll have to revise it," he said, adding that the revision should be announced in September.

Mr. Mantega said he doesn't see the recent slump in growth as a recession, because unemployment isn't rising. He blamed part of the drop in output on a weak global economy and said a pickup in growth elsewhere should help the Brazilian economy in the second half. The government is already seeing signs of growth in the third quarter, he added.

Many analysts, however, are less optimistic. They said the 2014 soccer World Cup, two weeks of which took place in the third-quarter, hurt growth as workers stayed home or were less productive as they watched the games. Low consumer and business confidence also indicate Brazil's economy will likely remain weak in the months to come.

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