The Brazilian economy officially entered into recession today after IBGE, the national statistics agency, reported that the economy contracted at a rate of 0.8 percent in the first quarter of 2009.  Economists define a recession as a contraction lasting two or more consecutive quarters.  Despite the official announcement, the contraction was more modest than many analysts predicted and a marked improvement over the 3.8 percent contraction in the last three months of 2008, leading to an appreciation of the real against most major currencies.

With this news, policymakers are likely to slow the pace of interest rates cuts, which the central bank has been making in an effort to spur lending.  Consumer spending and government spending slightly expanded in the first quarter, but capital spending fell by 12.6 percent, indicating that companies are reducing investments.  According to the Brazilian government, the modest contraction is likely to boost capital investments, which officials believe will lead to positive growth in the second quarter.