Brazil's recession deepens, worst annual drop on record

[SAO PAULO] Brazil's economy shrank 1.7 per cent in the third quarter, deepening its worst recession in 25 years and starving President Dilma Rousseff's government of taxes as she struggles with a growing fiscal deficit and a vast corruption scandal.

The quarterly contraction, reported by government statistics agency IBGE on Tuesday, was bigger than a median forecast of 1.2 per cent in a Reuters poll of 33 analysts.

On an annual basis, Brazil's gross domestic product dropped 4.5 per cent in the third quarter, the steepest decline since the beginning of the current data series in 1996.

Ms Rousseff's unpopular austerity efforts have foundered as the recession shrinks tax revenue faster than she can trim spending, eroding the credibility of her finance minister and leading Standard & Poor's to cut Brazil's credit rating to junk.

Investment fell 15.0 per cent from a year earlier, declining on a sequential basis for the ninth straight quarter.

Household consumption fell 1.5 per cent from the second quarter as unemployment hit a six-year high and consumer prices jumped nearly 10 per cent in 12 months.

Ms Rousseff's approval rating has fallen into single digits this year as the economy nosedives and the political mood sours, worsened by mounting evidence of a kickback scheme that funneled billions of dollars away from state-run firms.

IBGE also revised second-quarter growth to a 2.1 per cent drop, down from a decline of 1.9 per cent reported in August.

REUTERS