Brasília – The Brazilian economy should grow by 7.2% this year, according to the assessment of the National Confederation of Industries (CNI). The previous growth estimate for the Gross Domestic Product (GDP), which is the sum of all goods and services produced in the country, was 6%, according to the Informe Conjuntural bulletin, issued today (1st).
According to the CNI, the estimate has been revised due to “strong economic growth in the first quarter of the year.” according to the Brazilian Institute for Geography and Statistics (IBGE), the GDP increased by 9% from January until March, compared with the same period of 2009, the highest rate ever recorded using this basis of comparison.
To the CNI, however, the rate of growth this year “already points to a slowdown, and the trend should persist in coming quarters.” “The end of tax and fiscal incentives in March led consumption to behave atypically during the period, higher than the historic average. The slowing down of family consumption should persist, as a result of rising interest rates,” according to the document.
in the assessment of the CNI, the quality of growth should improve through increased investment, which will account for 19.4% of the GDP.
The estimate for the Broad Consumer Price Index (IPCA) this year has been maintained at 5.4%, above the mid-range inflation target of 4.5%. The upper inflation target limit is 6.5%.
“Even though inflation remains higher than the mid-range rate, it does not show further signs of accelerating,” according to the CNI. For that reason, the organization expects the growth cycle of the benchmark interest rate (Selic) to be shorter and less intense than initially expected.
The CNI expects the Selic growth cycle to end in September, with two increases, being one of 0.75% in July, and the other of 0.5% in the following meeting, scheduled to take place on August 31st and September 1st. Thus, by the end of 2010, the Selic rate would be 11.5% per year. Presently, the benchmark rate is 10.25% per year.
The Brazilian Central Bank raises the benchmark interest rate whenever it believes that the inflation rate is high, and the economy is overheated. It is up to the Central Bank to pursue the inflation target.
To the CNI, exports should total US$ 190 billion and imports, US$ 180 billion, with a trade surplus of US$ 10 billion, same as the previous estimate. The current account deficit projection is US$ 54 billion.
“The increased current account deficit is a consequence of the country’s accelerated growth, especially due to the lack of domestic savings,” according to the document disclosed today. According to the CNI, the worsening of foreign accounts is boosted by exchange rate appreciation, thus harming the competitiveness of Brazilian products and driving imports to increase.
In the assessment of the executive manager of the CNI’s Economic Policy Unit, Flávio Castelo Branco, in the foreign scenario, there are still doubts regarding the recovery of the European economy and the intensity of the United States’ bounce back. This hampers the foreign demand for Brazilian products. “Were it not for the foreign demand limitation, the economy would be growing at a stronger pace”, said Castelo Branco.
In the document, the CNI also claims that the lower growth rate of public spending and strong revenue increase will lead the adjusted primary surplus target (2.34% of the GDP) to be exceeded, even though the adjust-free target is unlikely to be attained (3.3% of the GDP).
The CNI also expects the net public sector debt-to-GDP ratio to drop from 42.8%, at the end of 2009, to 40.9%, by December this year.
*Translated by Gabriel Pomerancblum
