Brasília – Domestic demand for products and services will continue to be the key contributing factor for sustained economic activity. The evaluation is part of the Quarterly Inflation Report, disclosed today (30th) by the Central Bank of Brazil.
According to the report, "at a moment in which the slowdown in global economic activity remains surprising for its intensity and scope," the resistance "of domestic demand is a contributing factor for stabilisation of the Brazilian economy in the coming quarters."
However, the effect of the global slowdown on inflation “so far has been predominantly benign.” “This situation stems from the effects of the international crisis on domestic demand, which, in a way, has been prevailing over the impact of exchange depreciation.”
In the report, the Central Bank reminds that the international financial crisis is affecting the level of activity of activity of the Brazilian economy not only due to the reduced demand for exported products, but also due to the reduction in sources of funding and “the emergence of an overall scenario of uncertainty that is leading agents to postpone important decisions pertaining to consumption and investment.”
According to the report, “the main foreign element that generates uncertainty and risk concerns the duration of the world crisis.” In that respect, the Central Bank is considering two scenarios. “In the first scenario, should the crisis last longer and persist throughout 2010, then the repercussions and the retraction of the domestic economy would persist during the entire projection horizon.”
In the second case, should a resumption occur more rapidly, “then the restoration of financial conditions and confidence, combined with the recovery of the prices of commodities [basic goods], would imply an increase in inflationary risk.” “Even though the second scenario cannot be discarded, the first one seems more likely at the moment, based on the information available thus far.”
*Translated by Gabriel Pomerancblum
