(Bloomberg) -- Brazil’s economy stalled for a second straight quarter as consumers rein in spending and the boost from strong crop yields fades, likely foreshadowing harder times ahead for President Luiz Inacio Lula da Silva.

Official data released Friday showed gross domestic product was flat in the October-December period compared to the prior quarter, below the 0.1% median estimate from analysts surveyed by Bloomberg. Brazil’s GDP expanded 2.9% for the full-year 2023.

Stronger-than-expected growth in the first half of 2023 bolstered Lula’s political fortunes, as the 78-year-old leftist stakes his term on helping the poor and improving living conditions. That agenda becomes more challenging now as Latin America’s largest economy cools, cutting the funds available for him to spend on social programs. 

The decline in household consumption confirmed that the economy “lost momentum sharply,” William Jackson, Chief Emerging Markets Economist at Capital Economics wrote in a research note. Quarterly growth had also been flat between June and September, according to revised figures published Friday. 

Swap rates, which indicate market sentiment about monetary policy at the end of next year, were largely unchanged in morning trading following the release.

The strong expansion in early 2023 was due in large part to a so-called super harvest — record-setting crops of corn and soy beans — that propelled exports in the resource-rich nation despite high borrowing costs. A tight labor market and government aid, which expanded since Lula returned to office last January, also boosted consumption.

What Bloomberg Economics Says 

“The weak fourth-quarter GDP print confirms Brazil’s economy has lost steam as the lagged effects of tight monetary policy set in and the impulse from strong crop yields and higher fiscal spending faded. That poses a challenge for policymakers in 1H — the easing cycle that began in August won’t have worked its way through the real economy.”

—Adriana Dupita, Latin America economist

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In the fourth quarter, industry expanded 1.3% and services 0.3%, the statistics agency said. Meanwhile, household consumption dropped 0.2%.

Unfavorable weather conditions caused by El Nino are already hurting crops and making a similar agricultural bonanza in 2024 year unlikely. And the central bank has committed to only gradually lowering the key interest rate, now at 11.25%, amid lingering price pressures.

--With assistance from Giovanna Serafim and Robert Jameson.

(Updates with market impact, GDP details and analysis throughout.)

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