Some Banks Saying Brazil Won’t Grow More than 2.5% in 2005

Brazilian President Luiz Inácio Lula da Silva addressing a business forum in São Paulo discarded adopting “populist” measures to speed up the growth of the economy, which seems to have slackened in the first quarter of 2005.

“Don’t expect from me any populist measures because in a year and a half we’re holding elections… I want to build a strong growth foundation for this country, not only for this year”, emphasized Mr. Lula da Silva.


Presidential elections are scheduled for October 2006 and Mr. Lula is expected to attempt re-election.


Official releases made public this week indicate that the Brazilian economy expanded 0.3% in the first quarter of 2005 compared to the fourth quarter of 2004. leading several financial agencies to lower the country’s growth estimate for 2005.


Reports from the Brazilian Geography and Statistics Institute, IBGE, showed the economy expanding 2.9% over the first quarter of 2004 and the overall growth for 2004 was reduced from 5.2% to 4/9%, which anyhow was the best in eleven years particularly after a long stagnant cycle.


Even the government has reduced its original 2005 growth forecast from 4 to 3.5%, with some international banks pushing down as low as 3 and 2.5%.


President Lula has had growing difficulties in relating with Congress and his popularity has been tarnished by an alleged corruption scandal involving a government institution headed by officials from his party.


However he insisted that the Brazilian economy for the first time in ten years has been running ahead for eight consecutive quarters.


“The country needs an orderly attitude and a cycle of sustained growth of 10 to 15 years if we are to become some day a developed country and not eternally a developing country”, indicated Mr. Lula da Silva who cautioned that tight fiscal policies will be maintained as will expenditure “sacrifices” in the federal budget.


Brazilian industrialists blame the restrictive monetary policy, which has seen the basic interest rate jump from 16% last September to 19,75% in May, as the main cause of the emerging slump symptoms in domestic consumption and investment.


IBGE shows growth in the last 12 months to March was 4.2%, below last year’s 4.9%. Agriculture was the most dynamic in the first quarter of 2005 compared to a year ago expanding 4.2%, but industrial production slowed to 3.1% and services to 2%.


However figures are disappointing if compared with the last quarter of 2004. agriculture expanded 2.6%, industrial production actually contracted 1% and services 0.2%.


Furthermore domestic consumption which was beginning to pick up in 2004 helping the economy to expand has began to suffer the consequences of tight money and credit and contracted 0.6% in the first quarter of 2005 compared to the laste quarter of 2004.


Exports, in spite of the beefed up Brazilian currency, (the strongest in three years against the US dollar) continue to be the locomotive of the economy with a 3.5% increase in the first quarter of 2005 over the last quarter of 2004.


This article appeared originally in Mercopress – www.mercopress.com.

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