Latin America's largest economy failed to impress analysts in the third quarter when it posted 0.6% quarter-on-quarter growth and 0.9% year-on-year growth.
The market had expected GDP growth to show a significantly quicker pace after the government's massive stimulus measures this year and the central bank's very aggressive monetary policy.
The market consensus forecast was for the economy to expand by 1.2% quarter-on-quarter in 3Q12 and the long-expected recovery of the Brazilian economy has now been placed in doubt.
Several analysts have this year said that Brazil needs to switch from its consumption-led growth model to one that is more based on investment, as the first one has become exhausted.
However, Capital Economics noted that in the third quarter private consumption was actually up 0.9% compared to the previous quarter, while investment contracted by 2%. "A larger interventionism bias from the government, combined with the negative developments in the global economy, are clearly taking a larger toll on investments and growth," said Barclays Capital.
The disappointing third quarter figures, led Capital Economics to lower its full-year 2012 GDP growth forecast for the Brazilian economy to 1% from its previous estimate of 1.5%. For the same reason, Barclays Capital reduced its 2012 and 2013 growth forecasts to 0.9% and 3% from 1.5% and 4.1%, respectively.
As part of continued efforts to restart the sluggish economy, the central bank on Wednesday (Nov 28) decided to leave its record low monetary policy rate of 7.25% intact. Analysts expect the rate to stay at this level until 2014 - and some have not ruled out further cuts if the economic recovery does not appear in the coming months.