Brazil Economy Comes to Standstill as Output Plunges (Update1)

By Andre Soliani
Feb. 3 (Bloomberg) -- Brazil’s economic growth, after helping drive poverty to the lowest level in almost three decades, is coming to a standstill.
Record job losses, factory cutbacks and the biggest drop in exports since 1991 signal expansion in the fourth quarter of 2008 probably stalled. The country may be in its first technical recession -- two consecutive quarterly contractions of gross domestic product -- since 2003, said Tony Volpon, chief strategist at CM Capital brokerage in Sao Paulo.
“The worst may just be starting for Brazil as we haven’t yet seen contraction in demand,” said Alvise Marino, an emerging markets economist at IDEAglobal, in a telephone interview from New York.
A deteriorating economy will prompt policy makers to cut the benchmark rate by a full percentage point for a second straight time at their March 10-11 meeting, according to a Bloomberg survey. The central bank last month cut the so-called Selic rate for the first time in 16 months, lowering it to 12.75 percent, the biggest rate reduction in five years.
The yield on Brazil’s zero-coupon local-currency bonds due January 2010 declined to the lowest since the security started trading in October 2007 as traders increased bets the central bank will further cut interest rates.
“A 100-basis point cut has now become the consensus and some are already talking about an even bigger cut,” Volpon said in a telephone interview from Sao Paulo.