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BRASILIA, June 1 (Reuters) - Brazil’s economy grew by 1.2% in the first quarter, data showed on Tuesday, faster than economists had expected, as rebounding services and investments took Latin America’s largest economy back to is size at the end of 2019, before the pandemic hit.
It was the third consecutive quarter of growth. While the rebound has slowed, underlying figures suggest strong foundations for a continued recovery, prompting upward revisions to full-year forecasts and a surge in Brazil’s currency.
“This makes the outlook for the coming quarters very positive,” said Jason Vieira, chief economist at Infinity Asset Management in Sao Paulo, calling the data “a really good set of numbers, especially fixed business investment.”
Brazil’s real rose to 5.15 per dollar, on track to close at its strongest this year. It is up 0.5% since Dec. 31, a sharp rebound since being down more than 10% year-to-date against the dollar in March.
Economy Minister Paulo Guedes said growth this year will likely be “very strong”, and economists at Citi and Goldman Sachs jacked up their 2021 gross domestic product growth forecasts to 5.1% and 5.5%, respectively.
“We expect the economy to recover visibly in coming quarters in tandem with further progress on the Covid vaccination front, gradual reopening of the economy, renewed fiscal stimulus, (and) recovering consumer and business confidence,” Alberto Ramos at Goldman Sachs said.
Brazil’s economic recovery has also helped accelerate inflation, prompting aggressive interest rate hikes. The central bank has raised its benchmark Selic rate by 75 basis points at each of its last two policy meetings, to 3.50%, and has indicated it will do so again next month.
Brazil’s first-quarter growth was driven by services, industry and fixed business investment, official statistics agency IBGE figures showed. Agriculture grew by 5.7% in the quarter, its fastest pace in four years.
Government spending fell and manufacturing contracted. Household consumption fell less than expected, according to Vieira at Infinity, and is expected to stay surprisingly strong for the rest of the year.
The 1.2% growth rate in the January-March period from the previous three months was more than the median forecast in a Reuters poll of economists for 1.0% growth.
The range of forecasts from 27 economists was wide, indicating difficulty in assessing the impact of the end of emergency government aid payments to the poor on Dec. 31 and the onset of the COVID-19 pandemic’s second wave.
Industry expanded by 0.7%, the dominant services sector grew 0.4% and fixed business investment rose 4.6% in the quarter, IBGE said.
Household consumption slipped 0.1% and government spending fell 0.8%, one of the biggest quarterly declines in years. Within industry output, the manufacturing sector shrank by 0.5%.
Compared with the same period a year earlier, GDP grew by 1.0%, IBGE figures showed, also more than the 0.8% rise forecast in a Reuters poll.
IBGE figures show economic activity is back to its pre-pandemic level at the end of 2019 but still 3.1% below its peak in 2014.
Economists warned, however, that tight fiscal policy, rising interest rates and continued uncertainty surrounding the pandemic and government’s economic reform agenda were risks that point to much more subdued growth next year.
Reporting by Jamie McGeever; Editing by Danie Flynn, Nick Zieminski, Steve Orlofsky and David Gregorio