By TONY SMITH

SÃO PAULO, Brazil, May 29 — Brazil's economy contracted 0.1 percent in the first quarter of 2003 from the last three months of 2002, but it grew 2 percent
from the comparable quarter a year earlier, the government reported today.

The statistics came as a small relief to the government of President Luiz Inácio Lula da Silva, whose economic policies and competence were major worries going into last year's elections. Many economists had expected the country's gross domestic product to be flat or shrink outright in the quarter, both from the period before and from the year before.

The agribusiness sector was the main bright spot, recording 3.7 percent growth, according to the government statistical agency, known as IBGE.

"It's good news for Lula," said John Welch, chief Latin American economist for WestLB in New York. "The first quarter this year included the Carnival and Easter
holidays. If it hadn't, the numbers would have been even better."

WestLB is forecasting annual growth of 2.5 percent to 2.7 percent this year for Brazil. "I think many people are being way too pessimistic on Brazilian growth," Mr.
Welch said.

Since Mr. da Silva took office on Jan. 1, his economic team has managed to stabilize the currency and rein in galloping inflation, but the ordinary Brazilians he pledged to help are still suffering from low pay and spiraling unemployment, and most experts say 2 percent growth is too slow to do them much good.

In São Paulo state, Brazil's industrial heartland, unemployment rose to a new high of 20 percent, the government said this week.

Nevertheless, Brazil's national accounts are being bolstered by a growing trade surplus. The country's central bank said today that the country's public sector had
posted a primary budget surplus of 9.85 billion reais ($3.32 billion) in April, the highest on record for a single month. In March, the surplus was 6.75 billion reais.