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World Crisis Putting the Brakes on Brazil: Growth Forecast Down

Brazilian consumer C:\bzz\brazzil\brazzilmag.com\images\stories\2011\aug11\ The Finance minister of Brazil, Guido Mantega, admitted before the Senate that the global financial crisis is already having an impact in the local economy and this will be reflected in a lower GDP for the twelve months.

“Although we are still working on our original forecast of 4.5% for 2011, we believe a more accurate figure is 4%, which is not bad for a transition year,” Mantega told Brazilian senators.

He also recalled that the Brazilian government in the last months has been adopting a package of measures geared to avoid an over-heating of the economy, which also contributes to contract activity and the forecasted GDP.

However if the Brazilian economy were to ‘cool’ further than expected, the government is ready to intervene with “different tools”, which he did not detail, to prop the GDP.

“We won’t let the economy fall and we will take the necessary measures so that GDP continues to expand, but under control”, said the Minister.

Mantega also added he was convinced the slower global economic pace would not affect ‘significantly’ the employment rate and job creation of the country.

“Brazil is one of those countries which has managed to create more jobs in the world, at least proportionally,” said Mantega although immediately adding that it is ‘only natural’ that this year ‘less jobs than in 2010 will be created’, when a record 2.5 million positions were added.

Deficit

Brazil’s 12-month current account deficit narrowed in July on rising revenue from exports and strong foreign direct investment. The 12-month deficit declined to US$ 47.9 billion or 2.1%, of GDP, from US$ 49 billion, or 2.2% of GDP in June, the Brazilian central bank informed.

“Exports have come in very positive, with growth in sales of commodities and raw materials,” said central bank Economic Department coordinator Tulio Maciel.

Foreign direct investment totaled nearly 6 billion dollars in July, bringing the 12-month tally to a record 72.2 billion. That was higher than the central bank’s estimate of around 4 billion, boosted especially during the month by Japanese beverage company Kirin’s purchase of a 50% stake in local Brazilian brewer Schincariol for 2.5 billion dollars.

Credit Suisse said that a higher trade surplus as well as lower interest payment overseas was partly offset by a rise in remittance of profits and dividends, growth in international travel expenditures, and more spending on overseas equipment rentals.

Despite a narrowing of the current account deficit in July, Maciel said Brazil’s external accounts would likely remain in deficit in coming quarters due to robust local economic activity, and heavy purchases of foreign goods and services by local residents.

“The profile of the balance of payments will be maintained by strong local demand,” he said. “But the deficit has been financed in a very favorable way by FDI.”

For August, Maciel said the central bank is expecting a current account deficit of US$ 3.2 billion. For the year’s end, the central bank projects a deficit of US$ 60 billion. That is well wider than the US$ 28.95 billion seen in 2010.

Foreign direct investment, however, should continue to help finance the gap. The bank is projecting US$ 4.2 billion in foreign direct investment in August and US$ 55 billion for the full year in 2011.

In addition to investment and current account data, the central bank Tuesday also reported that outstanding public and private Brazilian foreign debt rose in July, increasing to US$ 297 billion from US$ 286 billion in June. Maciel said the increase came mostly due to long-term debt taken on by local banks.

The central bank also published Brazil’s international reserves at the end of July which now stands at 346 billion dollars.

Another data of the booming Brazilian economy is the expenditure of Brazilian tourists overseas which added up to a record US$ 2.2 billion dollars in July, said the bank. So far this year Brazilians traveling overseas have spent in the first seven months of 2011 a record US$ 12.4 billion dollars.

According to Maciel this expenditure tends to increase in line with solid employment and the growing income of Brazilian middle class plus strong Super Real against the US dollar.

Mercopress
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