By Year’s End Brazil Should Become the World’s Sixth Economy, Surpassing the UK

São Paulo's Avenida Paulista Reports from the International Monetary Fund and international private consultants show that at the end of the year Brazil’s GDP will rank sixth in the world and for the first time ahead of Britain’s GDP.  

Although Brazil’s GDP is only expected to grow 3.5% in 2011, less than originally expected by the government last January, it will total US$ 2.44 trillion, enough to surpass the US$ 2.41 trillion from the United Kingdom.

The report was published by daily Folha de S. Paulo based on IMF data and the EIU, Economist Intelligence Unit and BMI, Business Monitor International.

“The fact that the Brazilian economy is overtaking that of the developed countries reflects the effects of the access of large segments of the poor population into the middle class and the consumer market,” said Robert Wood, a US analyst.

If the growth tendency in Brazil is confirmed in the coming years it is possible that it can overtake all European countries, including Germany by 2020, adds the report published by Folha.

With its advance in the global economic stage “Brazil tends to have a greater voice in international forums and it is equally important it prepares to adequately assume such a role,” said Rogelio Sobreira economist from the Brazilian Foundation and think tank Getúlio Vargas.

Europe Crisis

Brazil’s government says it’s encouraged by Europe’s announcement of a plan to resolve the nagging debt crisis, though more details are needed on the proposal to determine its viability, Brazilian Finance Minister Guido Mantega told reporters.
 
“The EU meeting advanced an important proposal that now gives us something to work with,” he said.

After an all-night meeting, last week, European Union leaders said they secured a deal with private banks to reduce Greece’s debt by 50%. They also announced an agreement to expand the size of the Euro zone’s bailout fund, the European Financial Stability Facility, by up to five-fold, suggesting it could provide guarantees for EU member sovereign debt of around one trillion euros.

Mantega declined to comment at length on the proposals but said he believed they were an important first step toward resolving Europe’s debt woes.

“The proposed measures are a good start, but it’s unclear if they will be sufficient,” he said.

The Brazilian finance minister said questions remained about whether all participating creditors would sign on to the deal. However he declined to say whether Brazil would participate in backing for the deal.

Brazil’s government would begin examining the proposal in depth on Friday, Mantega said, and would prepare to discuss it with counterparts at a meeting of Group of 20 nation leaders in Cannes, France, this week.

Brazil all along has said it is willing to consider supporting the Euro zone but not directly to the financial stability fund but rather through the IMF.

Interest Rates Cuts

Brazil’s central bank said slowing global growth will have a large enough disinflation impact and allow policy makers to carry out “moderate” cuts to interest rates.
 
The bank, in the minutes to its October 18-19 meeting, said it sees “declining risks” of missing its 4.5% inflation target next year. The inflation rate fell to 7.12% in mid-October, the first decline in 14 months, though it remains above the 6.5% upper limit of the government’s target range.

“Even with a moderate adjustment in the basic rate, the inflation rate in the relevant horizon is positioned near the 2012 goal,” the bank said in minutes. The report was published hours after European leaders agreed to expand a bailout fund to stem the region’s debt crisis, easing concern that the global economy is heading for recession.

Policy makers cut the benchmark interest rate a half point for a second straight meeting last week, to 11.5%, to protect Brazil from turmoil that has wiped more than US$ 6 trillion from world stock markets since the end of July.

The central bank is betting that weaker growth in Europe, the U.S. and China will offset the stimulus provided by lower borrowing costs and curb the fastest inflation in six years.

Traders are betting on an additional 1.25 percentage point of rate cuts by March and recent data show growth and inflation are slowing faster than expected, bolstering bank President Alexandre Tombini’s case for rate cuts.

The central bank published a “base scenario,” which assumes that the world economic turmoil has an impact on Brazil a quarter as strong as the 2008 crisis, allowing inflation to slow to 4.5% next year.

In the reference scenario, which assumes a benchmark interest rate of 12% and in the market scenario, which assumes that the central bank cuts its benchmark rate in line with economists’ forecasts, inflation will exceed the 4.5% goal next year, the minutes show.

The central bank said that a “tight” labor market would continue to propel demand during the global economic slowdown. Wage increases incompatible with increases in productivity are a “very important risk” for inflation, the minutes said.

Brazil’s jobless rate was unchanged in September at 6%, the national statistics agency reported Thursday. The economic activity index, a proxy for GDP contracted 0.53% in August from the month before its biggest monthly drop since the global financial crisis of 2008. August retail sales fell the most since March 2009, while industrial production registered its third decline in five months.

Growth in the world’s seventh-biggest economy will slow to 3.3% this year from 7.5% in 2010, according to the median forecast in the most recent central bank survey.

Mercopress

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