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Last Updated: Thursday, 28 August, 2003, 17:04 GMT 18:04 UK
Brazil falls into recession
President Luiz Inacio Lula da Silva
Can President da Silva deliver on jobs?
Brazil's economy has fallen into recession according to the latest set of official figures.

During the April to June period the country's gross domestic product (GDP) contracted by 1.6% from the first quarter of the year.

The figure was worse than analysts' expectations and followed a contraction of 0.6% during the January to March quarter.

Industrial output in the country has been hit by high interest rates, which have been used to keep inflation under control.

Rebound on the way?

The contraction between April and June means the economy has now shrunk for two successive quarters, which economists take as marking a recession.

Industrial output shrank by 3.7% over the period, as companies suffered from the high interest rates.

However, economists said the economy could be set to grow again following a recent series of rate cuts.

"We should see a gradual recovery of income... and interest rates falling, which improves expectations, making people buy more then they used to," said Marcelo Salomon, chief economist with ING Bank in Sao Paulo.

Last week, Brazil's central bank trimmed rates by 2.5 percentage points to 22% - the third reduction in as many months.


President Luis Inacio Lula da Silva has come under pressure to meet his job creation promises made when he was elected last year.

Business leaders had complained that high interest rates were making matters worse, leading to job cuts and preventing growth.

But there have been some signs of improvements in the labour market.

The latest official figures showed the unemployment rate fell to 12.8% in July, from 13% the previous month.

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