Brazil’s economy in September grew more than double the rate forecast by analysts as the world’s second-largest emerging market shows signs of recovering from its first recession in five years.

The seasonally-adjusted economic index, a proxy for gross domestic product, rose 0.4 percent in September from the prior month after growing a revised 0.2 percent in August, the central bank said today in a report posted on its website. The median estimate of 28 economists surveyed by Bloomberg was for a 0.16 percent expansion.

The index shows the economy grew 0.6 percent in the third quarter, which would be a reversal of two prior quarters of falling gross domestic product, Flavio Serrano, senior economist at Banco Espirito Santo de Investimento SA, said by phone. It remains too early to say Brazil is in a phase of strong recovery, he said.

"The data surprised analysts by coming in a little above the estimates, but it is still too modest,” he said by telephone. “There are no certainties regarding the fourth quarter. Activity is still slow, investments are low and family consumption is moderating.”

The real depreciated 0.5 percent to 2.6138 per U.S. dollar at 9:47 a.m. local time. Swap rates on the contract due in January 2017 rose 5 basis points, or 0.05 percentage point, to 12.78 percent.

Economist Survey

The non-seasonally adjusted economic activity index rose 0.92 percent from a year ago, compared with a median estimate of a 0.5 percent increase. Brazil’s statistics institute is scheduled to publish third quarter GDP data Nov. 28.

GDP contracted 0.6 percent in the second quarter, following a revised 0.2 percent drop in the first three months of the year.

Economists surveyed by the central bank boosted this year’s growth estimate to 0.21 from 0.20 last week, according to the survey published today. That would be the worst performance since 2009, when Brazil suffered a recession. The expansion will accelerate next year to 0.8 percent, according to the survey.

Policy makers are struggling to stimulate growth without fueling inflation or expanding the budget deficit. With the threat of a second sovereign-credit downgrade looming, President Dilma Rousseff told reporters yesterday Brazil would reduce spending without sacrificing consumption or investment.

Retail sales expanded 0.4 percent in September from the previous month, a third the pace of the previous month as above-target inflation saps purchasing power.

Annual inflation in October slowed to 6.59 percent, still above the top of the central bank’s target range of 2.5 percent to 6.5 percent. Analysts surveyed by the central bank expect inflation to end this year and next at 6.4, which would be the fastest for the end of a year since 2011.

With inflation above target, the central bank on Oct. 29 boosted the benchmark interest rate by 25 basis points to 11.25 percent. They will increase borrowing costs one more time to 11.50 percent this year, raising them further to 12 percent in 2015, according to the central bank survey.

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