2:09 pm ET
May 27, 2014

A combination of weak industrial production, tepid investment and low consumer and business confidence in Brazil likely undermined growth in the first quarter for Latin America’s largest economy, according to analysts.

A survey of 12 economists by the Wall Street Journal shows expectations that Brazil’s economy barely grew in the first quarter from the previous three months. A median estimate of economists canvassed was for 0.2% growth in gross domestic product from the fourth quarter of 2013 and 2% expansion year-on-year.  That result would be similar to the zero quarterly economic growth in the opening three months of last year, when year-to-year expansion was 1.8%.

The government’s IBGE statistics agency will release data on first-quarter gross domestic product on May 30.

“The drop in confidence hurt—mainly investment decisions and industrial production activity,” said Roberto Padovani, chief economist at Banco Votorantim in Sao Paulo. High operating costs and taxes, inadequate infrastructure and government red tape have discouraged investment and undermined Brazilian industry’s competitiveness, economists say.

The outlook is for sluggish growth for the rest of the year, said Mr. Padovani, who is expecting the country’s annual economic expansion to slow to 1.7% in 2014 from 2.3% for all of last year.

Brazil has suffered through recent years of relatively slow growth, as the country failed to transform an economic model predicated on consumer spending. That growth model has run out of steam, according to economists, and the current lack of investment is crimping industrial capacity and generating inflationary pressures.

“We’re hitting supply limits,” said Marcelo Carvalho, an economist for BNP Paribas, during a conference call on Monday. Investment in new production capacity hasn’t kept up, and it takes time for the government and the economy to create the conditions needed for faster growth, he said.

Brazil’s main consumer confidence index fell in May to its lowest since April 2009, according to the Getulio Vargas Foundation, while the Brazilian Central Bank’s IBC-Br conomic activity index fell 0.11% in March from the previous month on a seasonally adjusted basis.

Consumer spending has been weak as household debt has climbed in recent years and consumer confidence has ebbed under pressure from of accelerating inflation.

The weak economy may prompt the central bank to focus monetary policy on boosting economic activity instead of tackling inflation. The bank is expected to end its year-long cycle of interest rate increases late on Wednesday, when its policy-setting council is likely to hold rates steady, according to economists. The central bank has raised the benchmark Selic rate nine times over the past year, from a record low of 7.25% to the current level of 11%, as it tries to tame inflation, which has stubbornly remained above the 6% level.

Central bank President Alexandre Tombini has said on more than one occasion in recent weeks that the effects of rate hikes on prices are cumulative and aren’t immediate, suggesting to analysts that the bank is ready to stop raising the Selic to see how much the past nine rate increases will slow inflation.