s<u+00c3>o paulo<u+2014>brazil<u+2019>s prolonged economic recession deepened in the third quarter amid political turmoil that has discouraged heavily indebted companies from investing and damped consumer spending, while hope for glimmers of a recovery failed to appear. gross domestic product shrank 0.8% from the second quarter, marking the seventh consecutive quarter of contraction, the brazilian institute of geography & statistics said wednesday. that was slightly better than expectations of a 0.9% decline in the third quarter from the second, according to a wall street journal survey of 10 economists. the economy shrank a revised 0.4% in the second quarter from the first after contracting 0.5% in the first quarter. the dismal numbers have already led some economists to cut their growth forecasts for next year. capital economics<u+2019> neil shearing said he now expects an expansion of 1% in 2017, down from 1.5% before the report was released. brazil<u+2019>s congress removed president dilma rousseff from office at the end of august, and she was replaced by her former vice president , michel temer. many analysts had hoped that ms. rousseff<u+2019>s long-expected ouster, on charges of fudging budget numbers, would clear up political uncertainty, increase confidence and encourage companies to boost spending on new projects. but the new chief executive<u+2019>s government has been plagued by ministers resigning amid allegations of corruption and mr. temer pushing reform measures that, though popular with investors, are opposed by large portions of the population. brazil<u+2019>s mammoth operation car wash anticorruption investigation continues to claim new victims among the country<u+2019>s political elite, and more plea bargains deals are expected, <u+201c>and that freaks executives out, they don<u+2019>t know what<u+2019>s coming next,<u+201d> said newton rosa, chief economist of s<u+00e3>o paulo-based investment firm sulamerica investimentos. company debt levels are also so high that many <u+201c>don<u+2019>t have the money for new investments,<u+201d> mr. rosa said. investment spending, a key barometer of business confidence, shrank 3.1% in the third quarter from the second and fell 8.4% versus the same period a year earlier, the ibge said. brazil<u+2019>s biggest steelmaker, gerdau sa, posted a steep decline in profit in the third quarter and said it would cut investment this year by 35% then trim more in 2017. the company expects <u+201c>a challenging market scenario (in coming months), with a gradual and slow recovery in economic activity,<u+201d> gerdau ceo andre gerdau johannpeter said during the company<u+2019>s earnings conference call earlier this month. brazil<u+2019>s big, and growing, budget deficit and national debt are more concerns holding investors back. president temer, whose approval ratings are in the midteens, is trying to push a constitutional amendment through congress that will limit government spending increases to the previous year<u+2019>s inflation rate. the measure has been approved by the lower house and awaits a final vote in the senate before being sent to the president to be signed into law. markets have been encouraged by the bill<u+2019>s steady movement toward approval, but expectations of a rapid recovery after mr. temer<u+2019>s move to the presidential palace were unfounded, said jason vieira, chief economist at infinity asset in s<u+00e3>o paulo. <u+201c>there was a lot of optimism about a recovery, but it wasn<u+2019>t based on the reality in the country,<u+201d> he said. that reality includes high, and rising, unemployment along with high, though slowing, inflation. both have discouraged consumer spending, which represents almost two-thirds of gdp. consumer spending fell 0.6% from the second quarter and 3.4% from the year-ago period. one bright spot in the picture is that the central bank of brazil began a rate-cutting cycle in october, trimming its benchmark lending rate to 14% from 14.25%, where it had been since july of last year. the bank will announce its latest rate decision later wednesday. expectations are for another quarter-point cut, though concerns about mr. temer<u+2019>s political problems and uncertainty about the u.s. federal reserve<u+2019>s next move following the unexpected election victory of donald trump led many analysts to trim their forecasts from a half point. write to rogerio jelmayer at rogerio.jelmayer@wsj.com and jeffrey t. lewis at jeffrey.lewis@wsj.com
brazil<u+2019>s economy shrinks again in third quarter  - wsj
jeffrey t. lewis