Brazil may slip into recession - Morgan Stanley

Mon Dec 1, 2008 1:41pm EST
NEW YORK, Dec 1 (Reuters) - The Brazilian economy may shrink during two consecutive quarters through the end of 2008 and beginning of the 2009, slipping into a "technical recession," Morgan Stanley said on Monday.
The investment bank, one of the first to mention the possibility of a recession in Latin America's largest economy, currently expects Brazilian growth of some 2 percent next year. It said, however, that a gloomier external outlook poses more downside risks to its 2009 forecast.
"A figure closer to zero cannot be ruled out," Morgan Stanley's economist Marcelo Carvalho wrote in a research note, adding that Brazil "may well fall into technical recession in coming quarters."
"We suspect that the local debate in the next three to six months will evolve as to whether Brazil is already in recession -- and how to get out of it," he said.
Carvalho argued that Brazil's recent growth was greatly supported by interest rate cuts that were facilitated by a stronger currency, which helped slow down inflation.
But the Brazilian real has weakened more than 20 percent against the dollar since the beginning of the year as investors sold their emerging-market assets to cover losses elsewhere. (Reporting by Walter Brandimarte; Editing by James Dalgleish)