2012.06.01 17:45:56 Brazil's Mantega: Industry Shows Signs Of Improvement In 1Q

SAO PAULO (Dow Jones)--Brazil's struggling industry showed signs of life in the first quarter, but weak performance by the agricultural sector undermined gross domestic product growth, Finance Minister Guido Mantega said Friday. Earlier Friday, the Brazilian Institute of Geography and Statistics, or IBGE, said that Brazil's economy expanded by 0.8% in the first quarter compared with the first quarter of 2011. That was the lowest pace of growth since the third quarter of 2009, when gross domestic product shrank 1.5%. Latin America's largest economy also grew 0.2% from the fourth quarter of 2011. Speaking to reporters in Sao Paulo, Mantega said that the Brazilian economy's performance in the first quarter repeated that seen in the fourth quarter of 2011. The biggest positive was the 1.7% growth posted by Brazil's struggling industrial sector in the first quarter from the fourth quarter, which was "good news," Mantega said. That was industry's best performance in four quarters, he added. Brazil's industry has stagnated since mid-2011 as the ongoing European debt crisis sapped international demand for locally produced manufactured goods, while a stronger real currency also caused a flood of cheap imports at home and made Brazilian goods less competitive in global markets. Industry is showing improvement, indicating that tax cuts and other measures aimed at stimulating output at the country's mines and factories are having an effect, Mantega said. "Industry will have a better performance than last year," Mantega added. A sharp decline in financial activity was a black mark in the first quarter, Mantega said. "The banks were not lending, had weak activity, but this should improve," the finance minister said. Brazil is already showing signs of ramping up economic activity in the second quarter, thanks to record-low unemployment, rising wages and greater access to credit, Mantega said. The finance minister expects Brazil to reach annual growth rates of between 4% and 4.5% in the second half of 2012. "The level of economic activity is accelerating, starting from May," Mantega said. The impact of the Brazilian Central Bank's recent series of interest rate cuts, which have brought the Selic base interest rate to a record-low 8.5%, will start having a bigger impact in the second quarter, he added. The recent depreciation of the real currency against the U.S. dollar will also be more favorable in the second quarter, Mantega said. "The second quarter will have greater growth than the first quarter," Mantega said. Despite signs of accelerating activity, Mantega said that Brazil remains ready to inject more stimulus into the economy--especially to boost investments. "Our measures to stimulate investments will be along monetary lines, given that we have space to reduce the Selic," Mantega said. In addition, Brazil will likely unveil fresh stimulus measures for businesses, while new industrial sectors are under consideration for payroll tax breaks, the minister said. -By Rogerio Jelmayer and Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; Jeff.Fick@dowjones.com (END) Dow Jones Newswires June 01, 2012 11:45 ET (15:45 GMT)