UPDATE 3-Brazil economy surges in 3rd qtr, but slowdown seen

Tue Dec 9, 2008 1:20pm EST
(Adds interest-rate futures, central bank comment)
By Todd Benson
SAO PAULO, Dec 9 (Reuters) - Brazil's economy charged ahead in the third quarter before the global financial crisis hit the South American giant with a vengeance, led by a surge in corporate investment and strong domestic demand.
Gross domestic product expanded by a better-than-expected 1.8 percent from the second quarter and a whopping 6.8 percent from the third quarter of 2007 -- the best year-on-year result since the second quarter of 2004 -- the government's statistics agency IBGE said on Tuesday.
The strong growth numbers in Brazil contrast sharply with the United States, Europe and Japan, where economies have been reeling for more than a year because of the global credit crunch and plunging consumer confidence.
In recent years, Brazil, Russia, India and China -- the so-called BRIC group of major emerging markets -- have been key to fueling world growth. The World Bank lists Brazil's economy as the tenth largest in the world.
Still, the third-quarter data is a snapshot of Brazil just before the global financial turmoil began to wreak havoc on Latin America's largest economy, causing a credit squeeze that has punished companies and consumers alike.
"The numbers are good, but they're old. We already know that the fourth quarter is not going well at all," said Silvio Campos Neto, chief economist at Banco Schahin in Sao Paulo. "This is like looking into the rearview mirror."
Since the global financial crisis took a turn for the worse in mid-September, Brazil's high-flying economy has shown signs of unraveling.
Car sales plunged in October and November, industrial output is contracting, and some companies like mining giant Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) (RIO.N: Quote, Profile, Research, Stock Buzz) have begun to lay off workers and scale back investment plans.
The recent slowdown has also helped ease inflation as retailers slash prices to attract customers, fueling a fierce debate as to whether Brazil's central bank should follow others around the world and lower interest rates to give the economy a boost in a time of global uncertainty.
The central bank, however, is expected to go the conservative route and leave its benchmark lending rate unchanged on Wednesday at a lofty 13.75 percent, according to a Reuters poll last week.
Yields on interest-rate futures <0#dij:> were mixed, with longer maturities creeping higher as investors bet that the robust third-quarter growth numbers may reduce the chances of a rate cut early next year.