Brazil GDP falls more than expected

Gross domestic product contracted 1.7% in the three months ended in September

Latin America’s largest economy shrank more than analysts forecast, as rising unemployment and higher inflation sapped domestic demand, pulling the nation deeper into recession.

Gross domestic product contracted 1.7 per cent in the three months ended in September, after a revised 2.1 per cent drop the previous quarter, the national statistics institute said in Rio de Janeiro. That marks the first three- quarter contraction since the institute’s series began in 1996.

A sprawling corruption investigation has caused political gridlock in Brasilia, delaying President Dilma Rousseff’s efforts to pass measures to fortify fiscal accounts and revive confidence. As the budget deficit has swelled, boosting threats of further sovereign downgrades to junk, the government on Monday was forced to impose a partial shutdown, freezing discretionary spending. Meanwhile, the central bank has boosted borrowing costs to the highest since 2006, depressing demand and boosting unemployment, while failing to tame double-digit inflation.

“We’re at the bottom of a deep pit and it seems that we’re still digging,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc, said by phone. “When you look at the numbers just on the domestic demand side, excluding net exports, the way this is going I think pretty soon we have to start labelling this a depression rather than just a recession.”

To slow consumer price increases, the central bank has nearly doubled the benchmark since 2013, to 14.25 per cent. That’s prompting companies to hold off on taking new loans as the state development bank also reduces subsidised credit. Investment fell 4 per cent in the third quarter — its ninth straight decline.

The investigation of kickbacks at state-run oil producer Petrobras is dimming the outlook for a better business climate.