| BUSINESSWEEK ONLINE : JUNE 14, 1999 ISSUE | ||||||||
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| BUSINESS OUTLOOK
Brazil: A Surprising Spark--but No Charge Yet Brazil has confounded experts with its quick rebound from what was expected to be a severe recession. Real gross domestic product grew 1% in the first quarter, after two straight quarters of contraction (chart). Economists were projecting that GDP would plunge 3% to 6% this year, but they are revising their estimates to a drop of around 1%. Meanwhile, inflation, which as recently as March was projected to hit anywhere from 25% to 80%, will likely finish the year at less than 10%--below even the most upbeat government estimates. Interest rates have been slashed to 23.5% from a high of 45% in March and will more than likely be cut again in mid-June. But it's too soon to celebrate. The first-quarter GDP figure, while a pleasant surprise, was helped by strong output in agriculture that is unlikely to be repeated in the second quarter. And inflation has been kept under control largely because high interest rates have squashed demand for consumer goods. Also, on June 2, the real fell to 1.76 per U.S. dollar, its lowest level in two months, after the state of Pernambuco said it would default on $150 million in debt to a private Brazilian bank. Unemployment is also a big concern. In April, joblessness in Sao Paulo, the country's largest city, hit a record 20.3%. A significant improvement is unlikely until interest rates drop to the mid-teens, sparking the economy. In the meantime, President Fernando Henrique Cardoso's government has offered tax incentives to businesses such as auto makers in an effort to revive industrial employment. Five months after being forced to ditch its dollar-pegged exchange rate, Brazil has learned that devaluation doesn't always come with the expected inflation and export boom. Low commodity prices, weak global demand, and lack of trade financing have left Brazil with a trade deficit of $479 million through May. Exports are picking up, but the government's projection of an $11 billion surplus looks way off. Economists are now predicting a surplus of as low as $2 billion. By Ian Katz in Sao Paulo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Brazil: A Surprising Spark--but No Charge Yet CHART: 1999 Starts Off on the Right Foot INTERACT E-Mail to Business Week Online | |||
