Economist Betting Lower Interests Will Take Brazil from Slump

Despite the prospect of a smaller growth in this year’s Gross Domestic Product (GDP), the economist Fábio Giambiagi, coordinator of the Conjunctural Accompaniment Group in the Institute of Applied Economic Research (IPEA), believes that, since November, the Brazilian economy has shown signs of recovery, owing basically to two factors.

Giambiagi was one of the people in charge of an IPEA study released yesterday, indicating a decline in the GDP projections for 2005 and 2006.

According to the study, this year’s GDP growth should amount to 2.3%, instead of 3.5%, as was previously estimated. Next year’s forecast was lowered from 4% to 3.4%.

In the economist’s view, the first factor pointing to an improvement in the economy is the inventory level reduction, which was "very strong" in the third quarter of this year.

"Sales levels didn’t drop, but there was merchandise available. Industry didn’t have to produce much," he informed.

"But since stores can’t sell what they don’t have, once inventory adjustments are made, the tendency is for their demand to increase to maintain a regular supply and their sales to maintain a good pace," he said.

The second factor, according to Giambiagi, is the weakening of the effects of the political crisis, which had a negative effect on the performance of the economy in recent months.

He also comments that the onset of the process of lowering the benchmark interest rate (Selic) can contribute to a recovery in the level of economic activity.

The Central Bank’s Monetary Policy Committee has been reducing the Selic since May. At its most recent meeting, on November 23, the annualized Selic was reduced from 19% to 18.5%.

Agência Brasil

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