Brazil Expecting Economy to Shrink 0.30%, Worst in 17 Years

Brazilian industry Economists from Brazil are forecasting that Latin America's biggest economy will fall into the worst recession since 1992 as companies scale back output amid the first global recession since World War II.

Analysts covering Brazil expect 2009 GDP to shrink 0.30%, down from a previous forecast of a 0.19% drop, according to the median estimate in an April 9 Central Bank survey of about 100 economists released Monday.

Industrial production had its two biggest monthly declines since 1992 in January and February as the global recession choked demand. Brazilian President Luiz Inácio Lula da Silva's government has responded by cutting taxes on car sales and construction materials while offering subsidies to homebuilders and promising to build a million houses.

"We are acting to ensure that the strength of our domestic market will compensate for deficiencies in external markets," Lula said Monday in his weekly radio program Breakfast with the President, broadcast nationwide. "Step by step, we're managing to take care of the economic situation."

Policy makers also forecast that the Central Bank will cut the SELIC benchmark interest rate for a third straight time to a record low 10.25% on April 29, according to the median forecast in the central bank survey.

In spite of the negative prospects it was also confirmed that Brazil could contribute with US$ 4.5 billion to the International Monetary Fund. Finance minister Guido Mantega had anticipated the announcement last week. He said the resources would go toward helping make credit available to other emerging market countries.

The move shows the country's finances are strong, Mantega said at a news conference. "Now we are just entering the club of IMF creditors," he said.

Brazil will make up to US$ 4.5 billion available to the IMF, on top of the US$ 10 billion it already pledged at a G20 meeting, Mantega said, adding that "it will be very unlikely" the IMF will draw on all the funds.

Brazil's inclusion into the IMF financial transaction plan is likely to be made official by the end of the month. The move is not expected to affect Brazil's international reserves but only its make-up, since the country would use part of its reserves to acquire the IMF Special Drawing Rights. Brazil's international reserves stood at US$ 201 billion last week.

Between 1998 and 2003 Brazil borrowed more than US$ 40 billion from the IMF but paid all its outstanding loans to the multilateral organization in 2005.

Mercopress

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