November 30, 2016 / 11:52 AM / 2 years ago

UPDATE 2-Brazil's recession worsens in 3rd quarter as investments fizzle

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By Silvio Cascione

BRASILIA, Nov 30 (Reuters) - Brazil’s economy plunged deeper into recession in the third quarter, dashing the government’s hopes that a lift in consumer and business confidence would bring a recovery after the impeachment of former President Dilma Rousseff.

Gross domestic product shrank 0.8 percent from the second quarter after seasonal adjustments, statistics agency IBGE said on Wednesday. That was in line with the median expectation of 37 economists in a Reuters poll.

Investments dropped sharply, frustrating hopes that a modest increase in the previous quarter, the first in more than two years, represented the beginning of a turnaround.

There were no bright spots as farmers, manufacturers and service providers all reduced production, while families and government agencies consumed less. Exports fell, following a 16 percent rise in the exchange rate year-to-date.

“This crisis is not like in 2008, when it was about confidence,” said Carlos Kawall, chief economist of Banco Safra in Sao Paulo. “This time it’s also about economic fundamentals - the fiscal policy and companies’ dire finances.”

Brazil’s disappointing economic performance since President Michel Temer replaced Rousseff in May has led economists and government officials to cut growth forecasts for 2017 to around 1 percent, although some analysts do not rule out a third year of recession in what would be the nation’s worst downturn ever.

Brazil’s economy shrank 2.9 percent from the third quarter of 2015, IBGE said.

Additional reporting by Patricia Duarte and Rodrigo Viga Gaier; Editing by Richard Lough and Lisa Von Ahn

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