São Paulo – This Tuesday (19th), the Brazilian Central Bank’s president Alexandre Tombini stated that Brazil will grow by 4% in the fourth quarter, compared with the same period of last year. He also claimed that in the first half of 2013, the rate of growth will be higher than 4.5%.
According to Tombini, the forecast is based on factors such as sustained domestic demand, lowered benchmark interest rate, and increased flexibility of the rules that govern obligatory payments made to the Central Bank by banks, which he claimed have improved liquidity in the financial system.
“The Brazilian economy’s growth perspective is positive. The growth will ramp up in the coming quarters. Our financial system is solid, well capitalized, with high liquidity levels – much higher than the average levels of the major advanced and emerging economies.” Tombini participated in a debate promoted in São Paulo by the Istoé Dinheiro magazine, alongside four former Central Bank presidents: Pérsio Arida (1995), Gustavo Franco (1997 to 1999), Armínio Fraga (1999 to 2003) and Henrique Meirelles (2003 to 2011).
Tombini pointed out job and income creation as factors which enable domestic demand to be sustained in the country. “The Brazilian economy continues to create jobs and income. In the last 12 months, nearly 1.4 million new jobs were created. The actual average wage remains on an upward curve, as a result of declining inflation, among other factors.”
According to Tombini, inflation tends to decline. “Economic growth tends to take place in a scenario of dropping inflation rates. After having reached 7.3% in September 2011, consumer inflation dropped to 4.99% in May this year. That is disinflation within a span of only nine months, In 2012, the rate should be 4.2%.”
The Central Bank president also claimed that the federal government’s tax-related measures are also likely to foster growth. He mentioned payroll tax cuts and investment in railways and telecommunication networks. “Besides, tax breaks are being considered for electric energy, which will lead to positive results in important industries.”
To Tombini, growth is being sustained by consumption. “The deep-seated structural changes seen over the last few years, combined with elements which ensure that domestic demand is sustained and that important stimuli are introduced, signal that there is room for consumption to grow further.”
To the former Central Bank president Henrique Meirelles, it is still early to evaluate the results of the government’s incentive measures. “I tend to have a realistic outlook. One of the foundations of Brazil is that it has a balanced economy that grows at rates compatible with its potential. We do not envision a country growing beyond its potential so much that it will create an imbalance. No country is immune to the crisis.”
Armínio Fraga, in turn, believes that the country’s economic conditions are good from a crisis management standpoint. “But you cannot completely stave off the effects [of the crisis]. From a conjuncture-oriented perspective, the government has had the adequate responses. What is lacking is a debate on how to maintain growth in the long term. That includes the government’s ability to invest by creating space within its budget, and private sector investment.”
*Translated by Gabriel Pomerancblum
