Brazil GDP growth still in the dumps in the second quarter of 2016

Weak spending by households dragged Brazil´s deeper into the mire over the three months to June, but the details of the report offered some glimmers of hope, economists said.

Gross domestic product shrank at 0.6% quarter-on-quarter clip in the second quarter, undershooting forecasts calling for a drop of 0.5% and worse than a 0.4% fall in the previous three months.

However, the rate of contraction did slow in terms of year-on-year rates of change, with the slide in GDP braking from 5.4% in the first quarter to -3.8% in the latest period.

Household consumption fell 0.7%, after collapsing 1.3% in the first quarter.

The sharp deterioration in the South American country´s labour market and persistently high inflation were still "squeezing Brazilians´ pockets", Andres Abadia, senior international economist at Pantheon Macroeconomics explained in a research note sent to clients.

Exports rose 0.4% over the quarter, even after a 4.3% gain for the three months to March, while imports jumped 4.5%, "consistent with the idea that domestic demand was finally stabilising", Abadia said.

Significantly, gross fixed capital formation, a measure of investment in the economy, grew 0.4% in the second quarter, after falling 1.6% in the first quarter of 2016 - that marked the first increase after 10 consecutive drops.

"Manufacturing is improving and the recent rebound in confidence indicators suggests that the sector will start to grow soon.

"Overall, the intensity of the recession is diminishing and leading indicators suggest that the worst is likely behind us, although risks are still to the downside.

"[...] Increasing optimism on the political front and a supportive global backdrop will also help," Abadia said.

Abadia´s forecast was for Brazil´s GDP to register a contraction of 3.2% in 2016.