Brasília – Once again, the International Monetary Fund (IMF) has revised its growth forecast for the Brazilian economy upwards, and mentioned the possibility of overheating. The World Economic Outlook report, disclosed today (6th), indicates that the Brazilian Gross Domestic Product (GDP) will grow by 7.5% in 2010 – a rate 0.4% higher than that of the previous projection, made in July.
The information was supplied by news agency BBC Brazil. The fund’s forecast is similar to market projections. The latest Focus bulletin (a survey disclosed weekly by the Central Bank based on market consultations), published yesterday (5th), forecasted that the country’s GDP would grow by 7.55%.
The estimate is slightly higher the Central Bank’s, whose forecast is 7.3%. The growth projected for Brazil in 2010 is higher than the world average (4.8%) and the average for Latin America (5.7%). According to the IMF, economic growth in Latin America is being driven by improving macroeconomic policies in the region’s countries over the last two decades.
Other factors, such as the high price of commodities (which comprise the foundation of many of these countries’ exports), have also impacted on economic growth. According to the IMF, Latin America is leaving the crisis behind faster than expected and the recovery is being led by Brazil, whose economy “is now showing signs of overheating,” according to the report.
The danger of overheating (economic growth exceeding the capacity of a given country) has been mentioned in two previous reports. In April, the IMF forecasted growth of 5.5% in 2010 and warned of “the risk of overheating in countries such as Brazil.”
In July, the IMF report did not specifically allude to Brazil, but once again it touched on the possibility of overheating while mentioning the threats posed by fiscal adjustment measures in advanced economies.
According to the report, the risk of overheating in Latin American countries is particularly high whenever the withdrawal of stimulus measures adopted at the peak of the economic crisis takes longer than forecasted.
The Brazilian government has repeatedly stated that it is taking all of the necessary measures to prevent the economy from overheating. Next year, the fund forecasts that the Brazilian economy should slow down and grow 4.1%. The estimate is 0.1% lower than that of July and slightly lower than the market’s 4.5% forecast.
The forecast for emerging countries contrasts with the outlook for advanced economies, which should grow by 2.7% in 2010 and 2.2% in 2011, according to the IMF. According to the fund, in most advanced economies – as well as in some emerging countries – post-crisis recovery is happening slowly and unemployment still represents a big challenge.
The IMF advises for countries to adopt measures in order to reestablish their economic balance and thus ensure a “healthy, sustained” recovery. The domestic measures suggested for advanced economies include stimulating the growth of private demand and fiscal consolidation (raising taxes and cutting spending).
The IMF also claims that central banks must maintain their current monetary policies (interest rate reduction) “wherever private demand is weak.” It warns, however, that there is not much more to be done. In many countries, such as the United States, the interest rate is near zero right now, leaving little room for maneuvers of this type.
The fund believes that governments should continue with financial sector reforms and devise medium-term plans to enable debt stabilization and reduction. In the first half this year, many advanced economies, especially in the Eurozone, have been hit by a crisis caused by high levels of public debt and budget deficits.
*Translated by Gabriel Pomerancblum
