CORRECTED-UPDATE 2-Brazil activity index falls sharply, raises recession specter
(Corrects 2013 IBC-Br growth rate to 2.57 pct, not 2.37 pct)
By Silvio Cascione
BRASILIA Feb 14 (Reuters) - Economic activity in Brazil fell sharply in December, raising the specter that Latin America's largest economy may have slipped into recession as the government phased out massive economic stimulus to battle inflation.
The Brazilian central bank's IBC-Br economic activity index declined 1.35 percent in December from November in seasonally adjusted terms, more than most economists expected, central bank data released on Friday showed.
The index, a rough reflection for gross domestic product data, rose 2.57 percent in 2013 as a whole but fell for two straight quarters, which characterizes a technical recession. It dropped 0.17 percent in the fourth quarter and fell 0.21 percent in the third quarter.
The central bank index, however, has not proven to be an exact barometer of official GDP data compiled by Brazil's statistics agency IBGE, which provides a broader reading of economic activity.
"My base scenario has been for stable growth in the fourth quarter, but it is very close now to a technical recession," said Luis Otávio de Souza Leal, chief economist at Banco ABC Brasil in Sao Paulo.
Official GDP data released in December showed a 0.5 percent contraction in the third quarter. Fourth-quarter results will be released on Feb. 27.
Brazil's economy has stalled as the central bank jacked up interest rates to curb inflation, further cooling an already slowing consumer sector. A barrage of tax breaks and credit incentives also did little to support manufacturing output, which continued to struggle with rising costs and poor infrastructure. Continuación...