Tax incentives

The country's economy has escaped a protracted downturn due to the solid foundation of the Brazilian banking system, experts have said. The government has also implemented tax breaks and made cuts to interest rates to encourage consumers to spend.

Household consumption picked up by 2.1 per cent in the second quarter of 2009, indicating that tax breaks on domestic goods and cars helped fuel demand.

"The data on consumption was good, and, even though the figures on investments were worse than expected, we're talking about an interruption of an abysmal slump the last quarters," Zeina Latif, chief Brazil economist at ING in Sao Paulo, said.

"The resumption of investments is essential to sustain the expansion."

Industrial output also increased at a better rate than analysts had predicted, with tax breaks encouraging businesses to produce more goods.

Retail sales volumes also went up in June, with consumers feeling more confident to spend money on the back of improvements to the country's labour market.

Brazil's exit from a recession could provide a boost to Dilma Rousseff, the country's chief of staff, who is looking to succeed Luiz Inacio Lula da Silva as president in October 2010 elections.

Rousseff, who is Lula's choice to succeed him as president, currently has little support in opinion polls.