Brasília – The International Monetary Fund (IMF) has revised its growth forecast for Brazil this year upward. According to the latest edition of the World Economic Outlook report, disclosed today, the Brazilian economy should grow by 7.1%, representing growth of 1.6% over the previous edition, published in April. The information was supplied by news agency BBC Brazil.
The forecast is slightly lower than Brazilian market projections. The latest Focus bulletin, of the Brazilian Central Bank, issued last Monday (5th), forecasts growth of 7.2%. For 2011, the fund is expecting the Brazilian Gross Domestic Product (GDP) to increase by 4.2%, growth of 0.1% over the previous projection.
In the report issued in April, the IMF was expecting growth of 5.5% for the Brazilian economy in 2010, and warned about the risk of economic overheating in countries such as Brazil. The new edition does not make specific mention to Brazil, but the possibility of overheating is cited once again, in an excerpt about the danger of fiscal adjustment measures adopted by developed economies may end up harming global recovery.
“These downside risks to growth in advanced economies also complicate macroeconomic management in some of the larger, fast-growing economies in emerging Asia and Latin America, which face some risk of overheating,” according to the text.
As a whole, the IMF’s forecast for emerging and developing economies is of 6.8% growth this year, an increase of 0.5% over the projection for April. The growth forecast for these countries in 2011 has been revised downward by 0.1%, and is now at 6.4%.
The report, however, claims that there is strong variation in these countries’ performances, with the main emerging Asian and Latin American economies leading the recovery. The IMF forecast that inflation should rise in emerging and developing economies. The forecast rate is 6.3% in 2010 and 5% in 2011.
While it warns about the danger that overly drastic fiscal adjustment measures in some countries may affect global recovery, the fund claims that rapidly growing advanced and emerging economies may start implementing restrictive policies right away.
According to the IMF, in some of these countries, it is preferable to resort to fiscal than to monetary policy. “For some, it may be preferable to use fiscal policy rather than monetary policy to contain demand pressures if tighter monetary conditions could exacerbate pressure from capital inflows,” according to the report.
Next up, the document states that “in contrast, in economies with excessive external surpluses and relatively low public debt, fiscal tightening should take a backseat to monetary tightening and exchange rate adjustment, in order to facilitate the necessary rebalancing toward domestic demand.”
According to the IMF, some of the larger, fast-growth emerging economies, “faced with rising inflation or asset price pressures, have appropriately tightened monetary conditions.”
“But monetary policy actions must remain responsive in both directions. In particular, should downside risks to global growth materialize, there may need to be a swift policy reversal,” according to the report.
*Translated by Gabriel Pomerancblum
