Brazil posts modest second-quarter growth, central bank index shows

Brazil's economy expanded just 0.2% in the second quarter from the previous three-month period, a central bank indicator showed on Monday, signaling a loss of momentum from the year's strong start, particularly in the all-important services sector.

The IBC-Br economic activity index, viewed by markets as a proxy for gross domestic product, fell 0.6% in June from the previous month, also on a seasonally adjusted basis. Economists polled by Reuters had expected a 0.53% contraction.

Brazil's official GDP data will be released by statistics agency IBGE on September 1. Latin America's largest economy grew 1.1% in the first quarter from the previous three months.

Central bank data showed that the positive quarterly reading for the IBC-Br was driven mainly by industry, which expanded 0.5% from the previous quarter. Agriculture rose 0.3%, while services, the backbone of Brazil's economy, shrank 0.1%.

The index is compiled using the central bank's estimates for those sectors, along with projections for taxes linked to production, which increased 0.1% in the second quarter from the preceding three months.

The second-quarter slowdown had been widely expected.

The Finance Ministry has said it anticipated softer growth as the effects of government support measures faded following a series of credit-boosting initiatives announced by leftist President Luiz Inacio Lula da Silva ahead of his October re-election bid.

Restrictive borrowing costs have also weighed on economic activity.

Although Brazil's central bank began an easing cycle in March, interest rates remain among the highest in real terms globally, at 14%, as policymakers seek to bring inflation, which stood at 4.44% in the 12 months through July, back to the official 3% target.