SAO PAULO, March 26: Brazil's economic activity slipped in January, central bank data showed on Monday, as weak exports and a sharper-than-expected decline in industrial output offset buoyant retail sales.

Economists also revised down their outlook for economic growth in 2012, a central bank survey showed on Monday, as the government struggles to revive the world's sixth largest economy with aggressive interest rate cuts and tax breaks.

Still, analysts said the slight decline in economic activity in January was not as bad as some had feared, pushing up yields on interest rate futures contracts as investors bet the central bank might not have to cut borrowing costs as deeply as initially expected.

The central bank also revised down December's economic activity versus November to a rise of 0.49 per cent from a previously reported increase of 0.57 per cent.

“This outcome is consistent with our scenario of very weak growth in 2012, around 2.3 per cent,” wrote Andr Perfeito, chief economist at Gradual Investimentos in So Paulo. “Industry is holding the economy back just like an anchor.”

The central bank foresees 3.5 per cent growth in 2012, while market analysts expect the economy to expand 3.23 per cent, according to the median forecast in a central bank survey released on Monday.

Latin America's largest economy grew only 2.7 per cent last year, much less than its regional peers, as local manufacturers struggled with heavy taxation, high labor costs and a strong currency. Industrial output declined 2.1 per cent in January from the month before, the statistics agency IBGE said earlier this month.

President Dilma Rousseff has set higher growth as one of her government's priorities this year after the economy slowed sharply in her first year in office. In recent weeks, the government exempted exporters from a tax on currency hedging in a bid to spur exports.

Brazil posted a trade deficit of $1.29 billion in January, the worst ever on record for that month, dragged down by a 27 per cent slump in exports.

The central bank has slashed its benchmark interest rate five times since August to bolster the economy, including a larger-than-expected cut of 75 basis points earlier this month to a two-year low of 9.75 per cent.

The bank has said the rate will likely fall to near the historic low of 8.75 per cent in the coming months, which should help the economy gain momentum in 2012 and 2013.

The government's efforts to spur growth will likely show more results in 2013, the central bank's survey showed, as analysts revised up their estimates for growth next year to 4.29 per cent from 4.20 per cent.

January's data would have been worse if it weren't for buoyant consumer demand, helped by near record-low unemployment.

Retail sales grew 2.6 per cent in the first month of the year, above all estimates in a Reuters survey.

“Firming consumer confidence, abundant credit, and a very tight labor market bode well for private consumption going forward,” said Goldman Sachs' economist Alberto Ramos in a note. —Reuters