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Brazil Exceeds All Economic Expectations

Brazil’s macroeconomic situation is better today than what was forecast at the beginning of 2004, when the Central Bank (BC) and the market estimated a trade surplus of US$ 19.15 billion, foreign direct investments of US$ 12 billion, and a US$ 3.5 deficit in current foreign transactions. All of these variables surpassed expectations.

This year’s trade balance is ending the year with a surplus of over US$ 33 billion, foreign investments have already surpassed US$ 17 billion, and current accounts are registering a surplus of more than US$ 10.5 billion.


According to figures released December 28 by the director of Economic Policy of the BC, Afonso Bevilaqua, who presented the Quarterly Inflation Report, the indicators show “results better than what was expected.”


“There is a trend for a strong growth in productive activities, maintaining the considerable results in the trade balance and a favorable situation in the job market, the balance of foreign accounts, and growth in the Gross Domestic Product (GDP) and exports.” he says.


Growth in the GDP for five quarters in a row lead market analysts to estimate a 5.1% growth in the country’s generation of wealth this year. The forecast at the beginning of the year was 3.5%.


Alongside these figures, Bevilaqua pointed out the reduction in the ratio between net government debt and the GDP, which declined from 57.6% in 2003 to a little more than 52% this year, “which guarantees greater external sustainability,” fortified by the US$ 3 billion increase in net reserves and the US$ 8 billion in gross reserves, which will end the year at US$ 25.4 billion and US$ 52.4 billion, respectively.


The director of the BC referred, as a reason for concern, to the control of inflation, in consequence of current wholesale and retail prices. The rates, in his opí­nion, remain at levels that are “incompatible” with medium-term target trends, and this makes monetary policy tighter.


Adjusting to market forecasts, the BC revised its estimate of this year’s Broad Consumer Price Index (IPCA) from 7.2% in its September report to 7.4%,


As for the rest, the annualized interest rate of 17.75% and the exchange rate of R$ 2.75 per dollar remain the same, and the director of Economc Policy estimates an IPCA of 5.3% in 2005 and 4% in 2006. Higher than the government’s target of 4.5%, readjusted by the Central Bank in its September report to 5.1%.


In terms of the market, all of the forecasts for inflation exceed the government’s targets. Inflation should end this year at 7.47%, falling to 6.3% next year and 5% in 2006.


Translation: David Silberstein
Agência Nacional

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