Brazil's economy shrinks sharply

Brazil's currency has fallen sharply against the dollar

Brazil suffered its biggest quarterly decline in economic output for more than a decade in the final three months of last year, official figures show.

Gross domestic product (GDP) shrank by 3.6% from the previous quarter, the largest quarterly decline since 1996.

The fall ends a three year run of consistent economic growth in Brazil, although output for the whole of 2008 remained strong at 5.1%.

The figures came on the same day that the IMF predicted a global recession.

Sharp decline

The quarterly contraction in Brazil does not bode well for the coming year and ends all hope that the country's economy might avoid the worst ravages of the global economic downturn.

"The fact that the economy slowed so sharply in the fourth quarter sets the stage for an even steeper slowdown in 2009," said Roberto Padovani at West LB do Brasil.

In light of the fall in GDP, the Brazilian central bank could cut interest rates - which stand at 12.75% - this week to stimulate the economy, analysts predicted.

Miguel Jose Ribiero of Brazil's Association of Financial Executives said he had expected a cut of 1%, but he "wouldn't be surprised if the cut is bigger".

"The indicators show we could have a very strong fall in economic activity in 2009," he said.