UPDATE 3-Brazil economy sinks into worse-than-expected recession
(Adds market reaction, fiscal data, economist comments)
By Brad Haynes
SAO PAULO Aug 28 (Reuters) - Brazil's economy shrank 1.9 percent in the second quarter, sinking into a recession that has hammered President Dilma Rousseff's popularity as she struggles to save the country's investment-grade credit rating amid a vast corruption scandal.
The quarterly contraction, reported by government statistics agency IBGE on Friday, was bigger than the median forecast of a 1.7 percent drop in a Reuters poll and confirms the worst slowdown for Brazil in nearly three decades.
A commodities-fueled economic boom has fizzled since Rousseff took office in 2011, and her stimulus efforts drove up public and private debt without spurring growth.
This year she reversed course, trying to cut government spending and subsidies as the central bank battles inflation. The austerity program has torn apart her governing coalition, but failed to lift business and consumer confidence from record lows.
Investment plunged 8.1 percent in the second quarter, its eighth straight decline. Household consumption, an economic engine during the boom years, fell 2.1 percent, the worst drop since 2001, due to rising unemployment, tighter credit and the highest inflation in over a decade.
"The drop in consumption shows the crisis of confidence the economy is facing," said Newton Rosa, chief economist with SulAmerica Investimentos. "This is going to be an intense and prolonged recession ... We can't hope for a recovery until at least the middle of next year."
The economy contracted 2.6 percent from the second quarter last year. Continuación...