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paraguayASUNCION: Paraguay's economy shrank 2.3 percent in the second quarter from a year ago, as a severe drought slashed soybean output in the world's No. 4 exporter, the central bank said on Friday.

The economic contraction was slightly less than in the first quarter and stable from the previous three-month period.

A sharp drought that slashed soy output in the world's No. 4 exporter has hurt the small Paraguayan economy. Officials expect a marked recovery next year due to forecasts of better weather.

"From the perspective of production, the agricultural sector continued to see losses in the two most important components: agriculture and ranching, where the first of them was affected by adverse weather," a bank report said.

Central bank official Rodi Ozuna said farm activity declined by 28 percent, partly compensated by a 4.8 percent expansion by the service sector. Public sector consumption jumped 18.2 percent while private sector consumption inched up 0.7 percent.

"GDP has fallen at virtually the same rate in these two (consecutive) quarters. In the next three quarters, we'll see better results," Ozuna said.

Gross domestic product (GDP) fell 2.6 percent year-on-year in the first quarter.

The central bank forecasts growth next year, when the landlocked country will hold a presidential election, at 8.5 percent as the key farming industry rebounds.

Paraguay's new government, which took office in June after the former president's controversial impeachment, plans to sell some $500 million in global bonds in February. That would be the nation's first such issuance since 2000.

Copyright Reuters, 2012

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