Brazil's economy expanded just 0.6 percent in the third quarter from the second quarter, according to government data released on Friday. That was half the pace expected by analysts and below all forecasts in a Reuters poll. "Looking forward with this GDP data complicates the scenario a bit. It will be difficult for Brazil to reach growth of 4 percent next year," said Alvaro Bandeira, a partner at Orama Investments.
Finance Minister Guido Mantega told reporters recently that Brazil would implement new stimulus measures to help ensure 4 percent growth in 2013, but his credibility has eroded as his optimistic forecasts have repeatedly failed to come true. After a sharp advance early in the year, Brazilian stocks slumped hard as the economy slowed. Equities recovered a bit off the lows, but they are still on track to post only a slight gain for the year.
Brazil's benchmark Bovespa stock index fell 0.65 percent on Friday as shares of steelmaker Gerdau dropped 4.42 percent and consumer goods manufacturer Hypermarcas shed 2.72 percent. The Bovepsa posted a slight dip for the week and about a 0.7 percent advance for the month. Traders said markets in December would be driven by the outlook on discussions by US lawmakers on how to avert a series of tax hikes and spending cuts set to take effect early next year. Economists are concerned the automatic adjustment could push the US economy into recession.
"If they reach an agreement to avoid the fiscal cliff, the trend for the market will improve," said Luiz Roberto Monteiro a trader at brokerage Renascença. Mexico could react the most to a negative outcome to the talks, since it sends more than 80 percent of its exports to its northern neighbour. "The market knows that if the United States falls, Mexico will sink," said Alfredo Coutino, an economist at Moody's Analytics.
However, gains for Mexico may be limited on a positive outcome to the US talks since local stocks are trading near a record high. Mexican equities have led gains in the region's stocks as US demand for local exports has shielded Mexico from a wider global slowdown. In Friday's trading, shares of Brazil's state-run oil company Petrobras dropped 2.56 percent. The company cancelled an order on Thursday for drill ships, cutting its $76 billion new rig program by almost a fifth.
Electric utilities lent support after Brazil's government late Thursday offered greater compensation to the sector in return for accepting sharply lower power rates as part of a concession renewal deal. "Even though the amount was less than what the companies wanted, it's above what the government had proposed paying," said Joao Pedro Brugger, an analyst with Leme Investimentos in Florianopolis, Brazil.
Shares of Centrais Eletricas Brasileiras SA, known as Eletrobras, jumped 23.56 percent. Mexico's IPC index fell 0.61 percent as telecommunications firm America Movil lost 1.16 percent. The IPC clocked a 0.5 percent rise for November. Mexico's stock exchange issued a new weighting for the IPC on Thursday, and traders said some dealers had been expecting America Movil's weighting would rise more than it did. Chile's IPSA index edged up 0.06 percent as a 1.31 percent gain in shares of fertiliser, lithium and iodine producer Soquimich was offset by a 1.65 percent loss in shares of regional energy firm Enersis.