(Adds quote and forecast revisions, updates market reaction)
By Jamie McGeever
BRASILIA, Feb 28 (Reuters) - Brazil’s economic growth nearly ground to a standstill in the fourth quarter of last year, data showed on Thursday, as falling investment and contracting industry added to concerns about this year’s outlook and challenges for new President Jair Bolsonaro.
Gross domestic product expanded by 0.1 percent from the previous quarter, less than the 0.2 percent median estimate in a Reuters poll of economists. Government statistics agency IBGE also revised growth in the July-September period down to 0.5 percent from a previously reported 0.8 percent.
The data added to signs that despite investor enthusiasm about Bolsonaro’s orthodox economic agenda, Brazil’s economy is still struggling to gain steam two years into a meager recovery after its worst downturn in decades.
The figures suggest activity this year will be lackluster too. Economists at Barclays cut their 2019 forecast for gross domestic product (GDP) growth to 2.2 percent from 2.5 percent, while Goldman Sachs economists cut their outlook to 2.0 percent from 2.2 percent.
The biggest drags on growth in the last quarter of 2018 were a 2.5 percent fall in fixed investments and contractions in industrial output and government consumption. Services and agriculture grew by only 0.2 percent, IBGE data showed.
“The result reaffirms a very gradual pace of post-recession recovery,” said Mauricio Oreng, senior Brazil strategist at Rabobank in Sao Paulo, adding that the data “suggest downside risk to our GDP growth forecast for 2019 of 2 percent.”
Brazilian GDP grew just 1.1 percent last year, unchanged from the previous year and an indication of how weak the recovery from the 2015-16 recession has been.
Then, the economy shrank by more than 6 percent in the worst recession in decades. Economists noted that rebounds from comparable downturns in the early 1930s and 1980s were far more vigorous.
The GDP data kept investors on the defensive. Brazil’s currency slipped 0.6 percent, implied interest rates rose the most in three weeks, and the Bovespa stock index fell 1.6 percent, its biggest drop in three weeks.
Much now depends on the government effort to overhaul the social security system, part of a plan to rein in a huge public deficit and attract more long-term investment to the country.
Bolsonaro presented a draft pension bill to Congress earlier this month which calls for raising the minimum retirement age and ultimately saving over 1 trillion reais ($300 billion) over the next decade. The final version, however, will almost certainly be a diluted version of that.
“Uncertainty caused by delays and/or excessive dilution of the expected savings could hurt the (economic) recovery,” Roberto Secemski, Brazil economist for Barclays in New York wrote in a note to clients. (Reporting by Jamie McGeever Editing by Brad Haynes, Jeffrey Benkoe, Nick Zieminski and Dan Grebler)