Economists in a Reuters poll had expected Brazil's GDP to increase by 1.5% while a Bloomberg survey put the rise at 1.2%.
Agriculture and livestock farming grew the most, at 2.5%, while industry advanced by 1.1% and services remained flat quarter-on-quarter, the Brazilian statistics office IBGE said in a statement.
Compared with the third quarter of last year, GDP increased by 0.9%, with agriculture and livestock advancing by 3.6% and services by 1.4%. Industry fell 0.9%.
"Considering the huge amounts of stimulus injected over the past year, including 525bps of interest rate cuts, the results have been disappointing to say the least," Neil Shearing, chief emerging markets economist at Capital Economics, said.
In August, the government announced ambitious plans for $65 billion in financing to modernize roads and railways over 25 years, including a big push to invest some $40 billion within five years.
Shearing said there was "some evidence" that the weaker real and the import restrictions imposed by Brazil – which have sparked fears of protectionism – started to help the country's manufacturing sector, as industry grew and "imports fell by a whopping 6.5%."
"But note that a significant part of the rebound in industry has been due to the effects of tax breaks on vehicle sales," he said.
"This boosted auto production in the third quarter, which we estimate may have accounted for as much as three-quarters of the increased in overall industrial output in the same period. But this boost is likely to prove temporary."
The breakdown of third-quarter GDP by expenditure shows that the monetary policy stimulus "has simply reignited the old consumption-led growth model," Shearing added. Private consumption rose 0.9% in the third quarter from the second, while investment contracted by 2%.
The signs for the fourth quarter are mixed, according to Shearing, who points out that steel production picked up last month, some measures of consumer confidence have improved and the prospects of China – Brazil's largest export market - look brighter.
But credit conditions are tightening and worries about the US 'fiscal cliff' and the eurozone debt crisis will continue o weigh on business confidence, he said.
"All told, we now think the economy will grow by only 1% in 2012 as a whole (previous forecast: 1.5%, consensus: 1.5%)," Shearing said.