Brazil stimulus fails to boost growth Brazil's economy barely grew in the first quarter of this year despite interest rate cuts and government stimulus measures, reinforcing concerns over a broad slowdown in emerging markets. Gross domestic product in Brazil expanded just 0.2 per cent in the three months to the end of March compared with the previous quarter, and 0.8 per cent year, forcing economists to review their forecasts. A Reuters survey of economists had predicted a 0.5 per cent expansion. IN Americas Economy Unusually though, the villain in this quarter was not the country's faltering industrial sector but its mighty agricultural industry, whose crops fell prey to erratic weather in several parts of the country. "In the first quarter, we felt the result of seasonal processes which led to a [partial] failure of the soybean crop and then a fall in the rice and tobacco crop," said finance minister Guido Mantega. The temporary downturn in agriculture, however, was expected to be a passing concern compared with the deeper underlying issues affecting the Brazilian economy. The first quarter was the fourth in Brazil in which growth has been below historical trends, with much of the weakness blamed on a faltering industrial sector that is struggling with a strong currency, high costs and competition from cheaper imports. "I was feeling a bit uncertain about our 2.5 per cent growth forecast for this year - about three months ago there were people forecasting 4 per cent growth or 4.5 per cent," said Neil Shearing, economist at Capital Economics in London. But if anything our forecast is looking a bit optimistic now. Aside from the 7.3 per cent contraction in agriculture compared with the previous quarter, investment also shrank while imports grew. Industry, helped by a favourable statistical base effect, expanded 1.7 per cent against the previous quarter but few expect it to continue to shine amid a run of data showing a week performance in the first two months of the second quarter. The bright spot in the economy continued to be the Brazilian consumer, with private consumption growing 1 per cent, supported by record unemployment and wage increases. "Brazil has a very dynamic domestic market and depends to a lesser extent on exports," Mr Mantega said, adding that he believed Brazil could still achieve an annualized rate of growth of 4 per cent in the coming quarters. His optimism is not shared by most analysts, however, who point to continued weakness in the industrial sector. One of the worst hit has been the auto sector. While Mr Mantega said there were signs it was bouncing back following a government stimulus package, this week, Mercedes Benz announced it was suspending more than 10 per cent of its workforce for five months to cope with a slowdown in sales. "I think it is still a pretty negative picture and it will take time before industries are able to digest inventories," said David Beker, economist with Bank of America Merrill Lynch in São Paulo. The weaker GDP figures are likely to spur the government to introduce more measures to stimulate demand and protect domestic production. On Thursday, President Dilma Rousseff announced a tax increase on motorcycles, air conditioners and microwaves that will mostly affect imports. Mr Mantega said the government had fiscal breathing room to cut taxes further for selected industries. He also hinted that the government could tolerate more weakness in Brazil's currency the real, which would make Brazilian production more internationally competitive. While it has depreciated sharply against the US dollar, the real was still strong compared with some of the currencies of Brazil's other trading partners. "With regard to the basket of currencies that represents all of our trading partners the situation is not so favourable," he said.