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Brazil: Lula Brushes off Recession


Brazil: Lula Brushes off Recession

Brazil is in a recession. During the first quarter there was a downturn
in all economic
segments: industry was down 3.7 percent,
agriculture down 1.2 percent and services down 0.3 percent.

Despite the bad news, President Luiz Inácio Lula da Silva said
that he is optimistic about the budget and
the economy for next year.

by:
AB

 

Brazil was technically in a recession for the first half of this year. GDP was down 1.6 percent in the second quarter,
compared to the first quarter, and down 1.4 percent, compared to the second quarter of last year. According to the Statistical
Bureau (Instituto Brasileiro de Geografia e Estatística) (IBGE), the results of its latest GDP survey were worse than expected.


During the first quarter of this year, there was a downturn in all economic segments: industry was down 3.7 percent,
agriculture down 1.2 percent and services down 0.3 percent. The demand for fixed capital (an indication of investment
levels) plummeted 6.4 percent. Family consumption was down 4 percent; and imports dropped 3.4 percent. The only bright
spots were in government spending, up 0.3 percent, and exports up 2.9 percent.


Even so, compared to the first half of last year, there was GDP growth of 0.3 percent in the first half of this year, with
agriculture up 5.7 percent, and services up 0.4 percent. The industrial segment was down 0.5 percent, mainly due to a drop
of 6.5 percent in the construction sector.

According to a note from the Ministry of Planning, the rise in GDP during the first half was made possible by restraint
in macro-economic policy. The ministry says it is forecasting renewed growth in the third quarter.

Lula Upbeat

Following a four-hour meeting with his cabinet regarding the 2004 budget, president Luiz Inácio Lula da Silva said
that he is optimistic about the budget and the economy for next year. According to a note from the Palácio do Planalto, Lula
believes next year is going to be a good year. "There is optimism because revenue could increase with expanding economic
growth. That will make it possible for the government to do more than planned initially," said the note.


During the meeting, minister of Planning, Guido Mantega, presented the final text of the budget and reported on the
government’s Multi-Year Plan (Plano Plurianual) (PPA) 2004-2007, both of which were just sent to Congress. Priority areas in the
budget are social programs, infrastructure and security.

The 2004 budget forecast is for revenue of R$ 402 billion (US$ 134), an increase of 5 percent over 2003.

Harvest Forecast

Brazil’s grain harvest this year should reach 120.8 million tons, an increase of 24.38 percent over last year,
according to the latest survey by the IBGE.


The IBGE says that regional production will be as follows: the Southern region will bring in 47 percent of the harvest,
the Central-West region 30 percent, the Southeast region 13 percent, the Northeast 7 percent and the North region 2 percent.

Fishlow and the IMF

The director of the Brazilian Center at Columbia University, Albert Fishlow, says that Brazil should renew its
agreement with the International Monetary Fund, but under more flexible conditions that would give the country more freedom to
decide where to spend money. Fishlow said it is still too early to renounce the IMF link because renewed growth is not strong
yet. "I think it would be a mistake not to renew the agreement with the IMF," he said.


Fishlow said Brazil still has a chance to grow in the last quarter of this year, adding that such growth could be based on
increased investments due to the greater credibility the country now has and the recent reduction in interest rates.


"I see an improvement in the situation in Brazil. With regard to macro-economics, there is no doubt that minister
Palocci has reverted the pessimistic expectations that existed not only here in Brazil but abroad as well," said Fishlow.

Fishlow said he believes there will be an increase in foreign investments next year, stronger domestic demand, a further
reduction in interest rates and, above all, more exports. He added that sustainable growth will require greater levels of domestic
savings, pointing out that savings in Brazil at the moment are at the same level they were in the 1950s.

 

The material for this article was supplied by Agência Brasil (AB), the official press agency of the Brazilian
government. Comments are welcome at lucas@radiobras.gov.br

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