October 18, 2017 / 11:29 AM / a year ago

UPDATE 1-Brazil August economic activity down the most in 5 months

(Updates throughout with context, details)

By Bruno Federowski

BRASILIA, Oct 18 (Reuters) - Economic activity in Brazil contracted in August at the fastest pace in five months, suggesting a less stable economic recovery than previously anticipated.

Activity fell 0.38 percent after seasonal adjustments, central bank data showed, following a downwardly revised 0.36 percent increase the month before. The median forecast in a Reuters poll indicated a 0.15 percent monthly contraction in August.

The disappointing figures are the latest sign of reduced economic impetus in Brazil after an unexpected decline in August retail sales, dampening optimism over the nation’s rebound from its deepest recession on record.

The readings indicate that a government measure authorizing workers to withdraw early from a severance fund that expired in July may have accounted for a substantial share of the recent pickup in consumer spending, which had driven several forecasters to revise up their gross domestic product (GDP) estimates.

Still, economists point to signs that the outlook for a gradual economic recovery remains intact. Low interest rates are having an effect on Latin America’s largest economy, they said, with sales of products closely connected to credit on the rise.

Sluggish growth should do little to lift inflation from the slowest in 18 years, allowing the central bank to continue cutting rates to an all-time low.

The Brazilian economy is expected to grow 0.72 percent in 2017 and then accelerate to 2.50 percent in 2018, according to a weekly central bank survey of economists. (Reporting by Bruno Federowski; editing by John Stonestreet and Chizu Nomiyama)

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