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Brazzil - Economy - August 2004

Bull Time in the Brazilian Economy

While inflation in Brazil shows signs of abating, the figures
for industrial production are up. Last week's forecast of 5.76
percent annual growth in industrial production grew to 5.95
percent, and growth expectations for this year's GDP now stand
at 3.92 percent, in comparison to 3.57 percent one month ago.

Stenio Ribeiro


Picture Following nearly three months in which forecasts crept up weekly, Brazil's financial market now expects the IPCA (Índice Nacional de Preços ao Consumidor Amplo—Broad National Consumer Price Index) to fall slightly.

Contrary to last week, when the principal market consultants and analysts predicted that inflation would amount to 7.20 percent this year, their current estimate reported in the Focus Bulletin puts inflation at 7.16 percent, which is still far from the government's official target of 5.5 percent.

This switch is mainly a reflection of the more moderate rise in consumer prices in the capital of São Paulo. So much so that the market's outlook for this month's IPCA was maintained at 0.60 percent, lower than the 0.91 percent actually registered in July.

On the other hand, the estimate for September's IPCA suffered a slight elevation, from 0.51 percent last week to 0.55 percent in the current survey. Inflationary expectations for the next twelve months experienced a small decline, from 6.40 percent to 6.18 percent.

At the same time that inflation shows signs of abating, the figures for industrial production indicate optimism over growth prospects. Last week's forecast of 5.76 percent annual growth in industrial production was raised to 5.95 percent, and growth expectations for this year's Gross Domestic Product (GDP) now stand at 3.92 percent, in comparison with 3.57 percent one month ago and 3.79 percent last week. The projection for GDP growth in 2005 remains unchanged at 3.50 percent.

The estimates for foreign direct investments continue to be US$ 10 billion this year and US$ 13 billion in 2005, according to the Focus Bulletin. The Central Bank, nevertheless, is working with the figure of US$ 12 billion in terms of its expectations for foreign investments in productive activities until the end of this year.

There was no change in expectations regarding this year's exchange rate, which should end the year at R$ 3.10 to the dollar, but the possibility of lower depreciation is foreseen for the end of 2005, with the previous prediction of R$ 3.25 reduced to R$ 3.20.

The market is more pessimistic, however, over the baseline interest rate (Selic), which is expected to remain at the current annualized level of 16 percent for the rest of this year.

70,000 New Jobs

The level of employment in manufacturing industries should grow 4 percent in 2004, according to a new estimate by the Fiesp (Federação das Indústrias do Estado de São Paulo—Federation of Industries of the State of São Paulo.

If this prediction is confirmed, it will mean the creation of over 70 thousand jobs this year. In its previous estimate, the organization projected 3.5 percent growth, around 60 thousand new jobs.

"We should have three more months of growth in the level of employment," affirms the Director of the Fiesp's Department of Research and Economic Studies, Cláudio Vaz.

He emphasizes that in July's survey the growth base was amplified. "Domestic market sectors showed growth, unlike the results for the other months, which were dominated by the figures for exports," he said.

In his view the data indicate a preparation for the end of the year. "Employment and income are growing. So it is natural that consumption and the figures for the domestic market are also growing," he remarked.

The level of employment in the manufacturing sector in São Paulo rose 0.76 percent in July, which means 11,756 jobs were created, according to Fiesp. That was the best July result since 1994, when the survey began.

For the year there has been a cumulative increase in São Paulo industrial sector jobs of 41,847, an increase of 2.73 percent. For the last 12 months, the increase reached 43,132 jobs.

Stenio Ribeiro works for Agência Brasil (AB), the official press agency of the Brazilian government. Comments are welcome at lia@radiobras.gov.br.
Translated from the Portuguese by David Silberstein.

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