Go Back

Brazzil - Economy - August 2004

Brazil Grows Despite High Interests

Some Brazilian economists are optimistic about Brazil's prospects
for this and next year. Companies are investing again. For 2005,
the key question will be investment. Infrastructure, such as roads,
ports, and energy, will demand urgent solution from the part
of the government and from Public-Private Partnerships.

Edla Lula


Picture The Institute for Applied Economic Research (IPEA) estimates that economic growth this year will surpass the previous forecast of 3.5 percent. The President of the IPEA, Glauco Arbix, informed that "all the preliminary data point to intense activity in various sectors, which suggests that the economy should grow more than what was forecast."

Arbix was unwilling to risk an exact percentage, "because the information is still being correlated," but he guaranteed that there is no reason for growth not to exceed 3.5 percent. "We are currently observing activity in the Brazilian economy that makes us quite optimistic."

The President of the IPEA cited external factors, such as the gradualness of the increase in American interest rates, which are currently 1.5 percent (annualized), enabling Brazil to protect itself against possible capital flights to the United States.

He also mentioned the economic upswing in Europe and Japan. As for the recent hikes in oil prices, he commented that only a "hypercrisis" in the sector will cause a shock to the economy.

Within Brazil, Arbix said, the outlook is one of optimism on the part of both the government and entrepreneurs, which is indicative of growth.

Signs of growth are also visible in the figures published in the General Register of Employment and Unemployment (Caged), released by the Ministry of Labor. There were 202 thousand new formal hirings in July, 5.3 percent more than in July, 2003.

Arbix alludes to the fact that Brazil has achieved this growth despite having the second highest benchmark interest rate (Selic) in the world.

"Many analysts wrote that the country would never succeed in growing with nominal annualized interest rates of 16 percent. Reality is disproving these prognoses. We are managing to grow."

He attributes this phenomenon to the fact that many sectors of the economy do not use the Selic in obtaining credit. "This is the case with agriculture, which gets lower rates. Other groups, made up of large corporations, obtain funds abroad, at low interest rates, while still others receive financing from the National Economic and Social Development Bank (BNDES), which also offers more favorable conditions than the Selic.

"In a rough estimate, we can say that we have between 40 percent and 50 percent of the economy operating with interest rates different from the Selic."

Arbix cautioned, however, that for growth to be sustained, the interest rate will have to be reduced.

Arbix is optimistic about 2005, considering that this year Brazil experienced a moment of recovery, with firms putting idle production capacity back to use. "Now the tendency is for firms to begin to invest more. Following the reactivation of idle capacity, in the next phase the number of people hired will grow even more," he wagered.

He claimed that "in 2005 investment will be the key question," and issues related to infrastructure, such as roads, ports, and energy, will demand urgent solution. Arbix emphasized the importance of the Public-Private Partnerships project to elevate investments in these strategic areas.

Employment Up

In July, 202,000 jobs were created on Brazil's formal job market—that is, legal, on-the-books jobs—an increase of 0.8 percent over June, reports the Ministry of Labor.

According to Minister of Labor, Ricardo Berzoini, the government is optimistic about formal jobs. "We have already reached our goal of creating 1.3 million jobs. Now our target is to reach 1.8 million new jobs by the end of the year," he says.

The highlights of job creation in July were in manufacturing (56,000 jobs) and agriculture (55,000). According to the ministry's monthly employment report, even the construction sector created 10,000 jobs in July, following a net loss of jobs for 2003. Many of the jobs are being created outside the country's major urban centers.

With regard to wages, Berzoini declared that the government does not have goals for wages at the moment because the priority now is to create jobs.

Supermarket sales were also up 7.7 percent in July, compared to June. For the year, there has been a cumulative rise of 1.17 percent, reports the president of the supermarket association (Abras), João Carlos de Oliveira, speaking at the launch of preparations for the Expo Abras 2004, Latin America's biggest supermarket fair which takes place in September in Rio.

"Very good sector performance," declared Oliveira, adding that it is expected that the strong sales will continue for the rest of the year with a 2 percent year-end increase. Oliveira said he believed sales would be up over 2 percent, which would offset losses of 4.5 percent last year.

Oliveira said interest rates and jobs remained unfavorable, hindering further growth in the sector.

"Those macroeconomic factors are not good, but they are better than they were a year ago and need to improve even more if we are to achieve sustainable growth. In order for supermarkets to really grow consumers have to have money in their pockets," he declared.

The Federation of Industries of Rio de Janeiro (Firjan) expressed its opinion that maintaining the annualized benchmark interest rate (Selic) at 16 percent can have adverse consequences for economic growth.

The organization recognizes that the decision by the Central Bank's Monetary Policy Committee (Copom) reflects a concern over next year's trend in inflation, but it considers that "keeping interest rates at high levels for a long period of time tends to sap the vigor of the country's current resumption of economic growth."

The Firjan once again called for measures to stimulate productive investment as a way to reduce the costs of the Central Bank's current policy.

Edla Lula 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.

Discuss it in our Forum

Send your comments to Brazzil

Anything to say about Brazil or Brazilians? Brazzil
wishes to publish your material. See what to do.