Brazilian economy growing at more than 8 pct

Published December 09, 2010
EFE

Sao Paulo – The Brazilian economy grew 8.4 percent in the first three quarters of 2010 and by 7.5 percent in the 12 months ending Sept. 30, the IBGE statistics agency said Thursday.

Both government and private economists have predicted Brazil's gross domestic product will expand 7.5 percent this year as the country continues to bounce back strongly from the recession that began in late 2008.

Brazil's GDP contracted by 0.6 percent in 2009.

Despite the generally positive numbers, the IBGE pointed out that growth slowed in the third quarter, with a gain of only 0.5 percent over the previous three months, compared with an advance of 1.8 percent between the first and second quarters.

The IBGE attributed the third-quarter slowdown to a 1.3 percent decline in the industrial sector, while noting that the real's strong appreciation against the dollar spurred a big increase in imports of capital goods.

The climb in the value of the real is a major concern for the Brazilian government, which has taken steps to discourage surges of foreign portfolio investment seeking better returns than are available in the United States and Europe.

Such inflows are thought likely to drive the real even higher against the greenback, making Brazil's exports less competitive.

The worries about declining exports are shared by business.

"We cannot accept that the country passively watches the decline of our exports of manufactured products," Roberto Giannetti, director of foreign trade for the powerful Sao Paulo State Industrial Federation, said this week.

Most of Brazil's economic growth this year has been thanks to expanding domestic demand, according to the IBGE, and imports have increased at nearly four times the rate of exports.

Household consumption climbed 6.9 percent in the first nine months, driven by gains in income and comparatively easy credit.

Finance Minister Guido Mantega, who will be staying on in his post when President-elect Dilma Rousseff takes office Jan. 1, says 2010 is the beginning of a phase of sustained expansion that will see average annual GDP growth of 5.5 percent through 2014.

Hailing the figures released Thursday, he said Brazil's economic growth is second only to China's.

Brazil's central bank left its key interest rate unchanged Wednesday at 10.75 percent, despite data showing inflation rising above 5 percent.

Directors said they decided against raising rates in light of the "less favorable" economic scenario compared with October, when they last met.

"Additional time" is needed to evaluate the effect of last week's move to increase banks' reserve requirements as a way of curbing the expansion of credit and consumption, the Banco Central said in a statement.

Parallel to the central bank's initiative, Mantega said earlier this week that the Rousseff administration will look for places where government spending can be cut.

The idea is to curb price rises through fiscal measures so the Banco Central can begin lowering interest rates, Mantega said.

Brazilian consumer prices rose 0.83 percent last month and the inflation rate for 2010 stands at 5.25 percent, IBGE said earlier Wednesday.

Cumulative inflation for January-November was 5.25 percent, while the rolling 12-month rate came in at 5.63 percent.

The Brazilian government's inflation target for 2010 is 4.5 percent and the Banco Central forecasts 5 percent inflation for the year as a whole, but private economists predict Latin America's largest economy will end this year with inflation at 5.78 percent.

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