Brasília – The Brazilian economy should grow 3.8% this year, more than in the growth of industrial production, estimated at 3.2%, according to the Conjuncture Bulletin disclosed this Monday (25th) by the chief economist of the National Confederation of Industries (CNI, in the Portuguese acronym), Flávio Castelo Branco. The estimates have improved when compared with the bulletin for April (3.5% and 2.8%, respectively).
Castelo Branco highlighted that the more optimistic outlook is the result of growth “above expectations” in the first quarter, when the economy grew by 1.3% over the previous quarter, as against an estimate of 1%. However, the growth of the Gross Domestic Product (GDP), i.e. the sum of all wealth produced in the country, lost steam in the months that followed, and is expected not to surpass 1% in each of the next two quarters, according to the economist.
He claimed that the processing industry should grow at an even lower rate than that of the general industry, at only 2.6%, due to growing imports of manufactured goods and the decreasing competitiveness of Brazilian product abroad. This, in turn, is mostly due by the depreciation of the Brazilian real against the dollar, which exceeded 30% over the last five years.
Castelo Branco explained that aside from the exchange rate issue, other factors add up to explain the slowing down of economic activity from the second quarter onward. Starting with the credit restriction measures, the raised benchmark interest rate (Selic), higher family and company insolvency and cuts in public spending.
Among the projections in the CNI’s quarterly publication, a highlight is the higher public debt-to-GDP ratio, which should end the year at 39.5%, rather than 39.9% as estimated in April. According to the Conjuncture Bulletin, there will be no more adjustments of the Selic rate this year, contrary to the expectation of financial analysts, who are betting on another 0.25% adjustment in late August. Castelo Branco stated that the “improved outlook on inflation indicates the end of the high interest rate cycle,” and the Selic should end 2011 at the current level of 12.5% a year.
The CNI has maintained, at 6%, its expectation for the Extended Consumer Price Index (IPCA), which is the official inflation indicator. It has also maintained its trade surplus projection at US$ 20 billion, as a result of US$ 250 billion in exports and US$ 230 billion in imports. The foreign current account deficit outlook, however, has worsened, from US$ 57 billion to US$ 61 billion.
*Translated by Gabriel Pomerancblum
