Bloomberg News

Brazil Economists Cut GDP Forecasts for Second Straight Week

November 26, 2012

Analysts covering Brazil’s economy lowered their 2012 and 2013 growth forecasts for the second straight week, as a lack of investment and the weak global economy outweigh the effects of stimulus measures in the world’s second- biggest emerging market.

Brazil’s gross domestic product will expand 1.5 percent this year and 3.94 percent in 2013, according to the median estimate of about 100 analysts in a central bank survey published today. Analysts had forecast 1.52 percent and 3.96 percent respectively the previous week.

Local manufacturers are struggling to remain competitive against global rivals even as the real has declined more against the dollar this year than any other of 16 major currencies tracked by Bloomberg. Brazil’s recovery remains vulnerable due to low rates of investment, said Roberto Padovani, chief economist at Votorantim Ctvm Ltd.

“It’s clear that investments in industry are worrisome,” Padovani said in a telephone interview from Sao Paulo. “Many analysts believe there are serious problems related to competitiveness, as well as the backdrop of global economic uncertainty.”

Falling Output

Industrial output in September fell for the first time since May on lower machine and equipment expenditures. Brazil’s seasonally adjusted economic activity index, a proxy for gross domestic product, fell for the first time in six months in September on slower industrial output and vehicle sales.

Officials in President Dilma Rousseff’s administration have said that a series of stimulus measures is already reviving growth. Since August 2011, policy makers have reduced the benchmark Selic rate by 525 basis points to a record 7.25 percent, cut taxes for consumers and companies and increased public spending.

Certain indicators suggest the economy is picking up speed. Foreign direct investment in Brazil was greater than economists expected for October, while retail sales rose for the fourth straight month in September. The government expects GDP to grow 1.2 percent in the third quarter and at least 4 percent in 2013, Finance Minister Guido Mantega said on Nov. 23.

Mantega said on Nov. 23 that Brazil’s real, which has declined 10.1 percent against the dollar this year, boosting industry competitiveness, is still not at an “entirely satisfactory” level.

’Under Control’

Annual inflation through mid-November accelerated to 5.64 percent, even as the pace of monthly increases slowed from mid- October. Brazil’s inflation remains “under control” and falling wholesale prices “are expected to be reflected in consumer prices in the coming months,” central bank President Alexandre Tombini said in a congressional hearing last week. Tombini added that inflation will converge to the central bank’s target by the third quarter next year. The bank targets inflation of 4.5 percent plus or minus two percentage points.

Economists in the survey forecast inflation of 5.43 percent this year, down from the previous week’s estimate of 5.45 percent, and said prices would rise 5.40 percent next year, up from the previous estimate of 5.39 percent.

Brazil’s economy expanded 2.7 percent last year, down from 7.5 percent in 2010.

To contact the reporter on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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