Brazil Q2 2007 GDP

Brazil's economy expanded at the fastest pace in three years in the second quarter as lower interest rates and a currency rally fueled higher consumer spending and business investment.

Gross domestic product, the broadest measure of a country's output of goods and services, jumped 5.4 percent from a year earlier after growing a revised 4.4 percent in the first quarter or put another way gross domestic product in the April-June period expanded a seasonally adjusted 0.8 percent from the first quarter.

The Brazilian economy's year-on-year expansion in the April-through-June period was the fastest since the economy grew 7.5 percent in the second quarter of 2004.

Brazil's currency gained on the news and the real gained 0.8 percent to 1.9090 per dollar at 4:08 p.m. New York time (13-09-07), the strongest since Aug. 9 when it traded at 1.90 reais per dollar. The real has gained almost 12 percent this year, the best performer among the six major Latin American currencies.

Brazil's central bank has cut the benchmark lending rate 18 straight times since September 2005 - from 19.75 percent to 11.25 percent, fueling consumer lending, business investment and industrial output. The real has appreciated 20 percent against the dollar in that period as export revenues for Brazil's commodity exports surged.

Consumer spending in Latin America's biggest economy rose 5.7 percent in the second quarter from the same period a year earlier, the 15th straight quarterly increase, the government said. Investment rose 14 percent compared with the second quarter of 2006, while industry rose 6.8 percent, services 4.8 percent and agriculture rose 0.2 percent.

The 12-month inflation rate has accelerated since March, when it reached 2.96 percent, its lowest level since February 1999. In August, the rate climbed to 4.18 percent.


Bank lending has increased every month since February 2004, helped by falling interest rates and the increase in paycheck- backed loans, created by Lula in September 2003, the central bank said Aug. 27.

The program allows workers to borrow at lower costs because repayments are deducted directly from their wages.

Vehicle sales in Brazil have risen more than 25 percent this year as lower borrowing costs, coupled with longer maturities for car loans, fueled demand. Automakers have stretched out maturities to as long as 84 months from 36 months last year, lowering the monthly payments for borrowers.