Brazil's economy kicks off rough year shrinking 0.2%

Rio de Janeiro (AFP) - Brazil's economy, the world's seventh largest, contracted by 0.2 percent in the first quarter of 2015, the government said Friday, kicking off a rough year in which it is expected to continue shrinking.

The figure confirmed a five-year slowdown in the South American giant's GDP but was smaller than the 0.5 percent drop that most analysts had forecast.

 The economy grew just 0.1 percent in 2014, its fourth straight year of meager growth. And Brazil is preparing for an even tougher stretch this year: the government is forecasting a decline of 1.2 percent, bigger than the 1.0 percent contraction foreseen by the IMF.

 The new figures add to a pile of discouraging economic data. Annual inflation stood at 8.17 percent in April, well above the target of 4.5 percent. Raising the key interest rate to rein in prices is tricky because it already stands at a whopping 13.25 percent.

 Still, analysts predicted another rate increase was likely. Even unemployment, long the brightest indicator, has risen in the first four months of the year, to 6.4 percent in April.

 With President Dilma Rousseff pushing budget cuts in a bid to shore up the government's books, the economy will probably get worse before it gets better, analysts warn.

 "Employment is already being affected, the numbers are already bad. In April Brazil lost 100,000 jobs and the expectation is that it's not over yet," said Andre Leite, an analyst at Sao Paulo consulting firm TAG Investimentos.

 -- 'Very bad times --

 "We're still going to live through some very bad times for the economy," he told AFP. Even though the contraction was slightly smaller than forecast, "the current scenario is still bad, and getting worse," said Andre Ferreira, head of brokerage firm Nova Futura.

 He said the government's budget cuts of $23.3 billion, announced last week, could cause a further contraction, predicting a "better scenario" only in the second half of next year.

 Brazil's economy grew 0.3 percent in the last quarter of 2014, after exiting a recession the quarter before with 0.1 percent growth. Under Rousseff, the economy has never returned to the blistering growth it posted under her predecessor and mentor, Luiz Inacio Lula da Silva, which reached 7.5 percent in 2010, his last year in office.

 Like much of Latin America, Brazil has been hit hard by the sharp decline in commodities prices after a boom in the 2000s. It is also reeling from the impact of a massive corruption scandal at its largest company, state-owned oil giant Petrobras, which has stained the ruling Workers' Party and key Rousseff allies.

 Prosecutors accuse Petrobras executives of colluding with construction companies to massively inflate contracts and bribe politicians in a decade-long scheme. Petrobras estimates the kickbacks cost it around $2 billion.

 The contraction in the first quarter was led by the services sector, which shrank by 0.7 percent, said national statistics institute IBGE. The industrial sector shrank by 0.3 percent and household consumption by 1.5 percent. The agricultural sector expanded by 4.7 percent.

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