Central Bank Forecasts Brazil’s GDP Will Grow 5.8% in 2010

Brazil's pre-salt oil Brazil's Gross Domestic Product (GDP) will grow 5.8% in the coming year. The projection was made by the Brazilian Central Bank and was issued this Tuesday, December 22, on the Inflation Report for December.

Family consumption in Brazil should also rise by roughly 6% next year. The document of the Central Bank informs that economic activity in the country should see a gradual resumption, sustained by domestic demand alone.

Industry will be the driving force behind Brazilian growth. The sector should expand by 7.6% in 2010, after a 5% retraction this year. The highlight is the processing industry, which should grow by 8.8%. Civil construction should increase by 6.4%.

The various projects of the federal government Growth Acceleration Program (PAC) are going to be one of the drivers of the productive activity in 2010.

Another industrial sector for which there are good projections is the extraction industry, which should grow by 6.4% next year, driven by oil and perspectives of success in pre-salt layer drilling. Water, gas and electric power distribution should increase by 4.8%, according to the monetary authority.

The services sector has an estimated growth rate of 5%, driven by the financial sector (7.2%), as a result of continuing credit expansion. The Central Bank estimates that trade should grow by 6.5%, and transport, storage and the postal service, by 6.4%. Information services should expand by 6.5%.

The prospect for agriculture is not so good, according to the Central Bank document. Due to the crisis, not only in Brazil, but also in the rest of the world, the agricultural sector should grow 3.7%.

Labor market

According to the Central Bank report, family consumption should increase by 6.1% in 2010, a trend in keeping with labor market recovery and the stabilization of inflation rates. Government consumption, in turn, is projected to grow by 2.9%, as a result of which domestic demand should account for 6.9% of the total GDP.

The foreign sector, however, will have a negative contribution again in 2010, at 1.1%, even though both exports and imports are expected to grow.

Government revenues should increase in 2010, with tax revenues projected to go from zero growth this year to a 6.3% expansion next year.

As for investment measured by gross fixed capital formation, the Central Bank expects more-than-favorable behavior: growth of 15.8% in comparison with 2009, as opposed to a 9.9% reduction this year, compared with 2008.

Inflation

The inflation forecast for this year, measured by the Extended Consumer Price Index (IPCA), has increased from 4.2% to 4.3% in 2009, assuming a Selic rate (benchmark interest rate) of 8.75% and the United States dollar equivalent to 1.75 Brazilian reais. In 2010, according to the monetary authority, the inflation rate should be 4.6%.

In Brazil, a system of inflation targets is in effect, under which the Monetary Policy Committee (Copom) has to adjust the interest rate in order to meet a preset goal based on the IPCA.

For this year, 2010 and 2011, the central inflation target is 4.50%. There is, however, a 2% tolerance range, upwards or downwards. Thus, the IPCA may range from 2.50% to 6.50% without the target being formally missed. For 2009, the growth forecast has been lowered from 0.8 % to 0.2%.

Anba

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