Brazil first quarter economy shrinks 0.3%, less than feared

Brazil's economy, which is grappling with political crisis and its worst recession in decades, shrank a less-than-feared 0.3 percent in the first quarter of 2016, the government statistics office said Wednesday.

Economic output between January and March had been forecast by Itau Unibanco to fall by 0.8 percent. The year-on-year GDP shrinkage came to 5.4 percent, under the 6.1 percent fall forecast by Itau, Brazil's leading private bank.

The figures from the Brazilian Institute of Geography and Statistics (IBGE) are unlikely to dispel the gloom in Latin America's biggest economy, with Brazilian economists' latest consensus for a 3.81 percent contraction over this year, on top of a 3.8 percent dip last year.

The Organization for Economic Cooperation and Development (OECD) released a report Wednesday predicting a contraction of 4.3 percent this year, followed by a 1.7 percent fall next year.

The Brazilian market consensus is for weak 0.55 percent growth next year.

The global fall in commodity prices has hit Brazil's economy, a major exporter of oil, agricultural products and raw materials, hard.

A political crisis has also paralyzed the government, with president Dilma Rousseff suspended to face an impeachment trial and her replacement, acting president Michel Temer, facing a difficult start.

Temer has picked a market-friendly economic team and vowed to make extensive reforms, but already has lost two of his new ministers to a massive corruption scandal centered on state oil company Petrobras.

The GDP crunch was led by a 1.2 percent first quarter dip in the industrial sector. There were also 0.3 percent and 0.2 percent dips in agriculture output and services respectively.

Statistics released Tuesday put Brazil's national jobless rate at a record 11.2 percent between February and April, making a total of 11.4 million people unemployed, up from 8.02 million people a year earlier.

Reflecting the belt tightening among ordinary Brazilians, consumption fell 1.7 percent.

On the bright side, exports rose 6.5 percent. Imports fell 5.6 percent.

Temer, who is serving on an interim basis during Rousseff's trial, but would take over until elections in 2018 if she is removed from office, vows to make the economy his priority.

Despite the scandals rocking his cabinet, he scored an earlier victory last week when Congress approved his request to ease up the government spending ceiling.

By widening the approved primary budget deficit, Temer's government wins time and flexibility to enact austerity measures and other market reforms.