IMF Forecasts 5.5% GDP Growth for Brazil with Risks of Overheating

Brasília skyline seen from the lakeLatin America’s largest economy and leading Mercosur partner, Brazil is poised to grow 5.5% this year, almost a whole percentage point more than the previous forecast in January, according to the International Monetary Fund “World Economic Outlook” released in anticipation of the IMF and World Bank annual assembly this weekend in Washington.

“Economic growth in Brazil is expected to rebound in 2010 boosted by strong domestic demand and investments in the private sector,” points out the document.

However IMF anticipates that growth in Brazil will slow down to 4.1% in 2011, as the fiscal and monetary stimulus package which is pushing current economic activity is definitively withdrawn, said IMF economist Petya Koeva during the presentation of the World Economic Outlook report to the press.

Koeva added that Brazil’s economic cycle is “quite advanced” and has less idle capacity than most other countries: that means “it is approaching its top production capacity” with risks of overheating.

IMF also recommended the elimination of the stimulus policies as soon as “over heating” risks become evident for the economy. Last January IMF has anticipated that the Brazilian economy would expand 4.7% in 2010 and 3.7% in 2011. The economy expanded 5.1% in 2008 before the global crisis and contracted 0.2% last year.

IMF estimates consumer prices which in 2008 reached 5.7% and 4.9% last year, should be in the range of 5.1% this year and 4.6% in 2011.

Brazil’s current account deficit in 2008 was equivalent to 1.7% of GDP and 1.5% of GDP last year. For 2010 IMF is forecasting a 2.9% GDP deficit and a similar percentage in 2011.

Mercopress

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