Industry Revises Brazil’s Growth Up. GDP Expected to Grow 3.7%.

Brazil’s National Confederation of Industries (CNI) has increased its forecast for the growth of the Brazilian economy in 2006. The signs of recovery of economic activity show that the Gross Domestic Product (GDP) of Brazil should grow 3.7%, pushed by industrial growth of 5%.

At the end of last year, the estimate was that the GDP would grow 3.3% and industry would grow 4.2%, according to the organizations Conjectural Information, disclosed last week by the CNI.

"The reduction of interest rates, the good conditions of credit, the increase of employment and worker income increases consumption, stimulating growth," stated the executive manager of the Economic Policy Unit at the CNI, Flávio Castelo Branco.

He recalled that, despite the improvement in the scenery, the rhythm of expansion of the Brazilian economy will be lower than the 6% average forecasted by the International Monetary Fund (IMF) for developing countries.

According to the Conjectural Information, different from what took place in previous years, when exports were the motor of activity, growth in 2006 will be sustained by the domestic market.

The CNI estimates that the consumption of families will increase 4.5%, more than the 3.2% forecasted at the end of 2005, pushed by a reduction in interest rates and an increase in income.

The reduction of the Long-Term Interest Rate (TJLP), which dropped to 8.15% a year in March, and the expectation of greater dynamism of industrial activity stimulated company investment. For this reason, the CNI has increased the forecasted growth of investment to 8.2%.

At the end of last year, the forecast was that investment would grow 6.5%. "Companies are returning to investing, and this will help sustain economic growth," stated Castelo Branco.

US$ 41 Billion Surplus

The CNI has also changed its estimates for the Brazilian trade balance surplus. With the expansion of domestic consumption and the appreciation of the Brazilian currency, the real, against the dollar, imports, according to the organization’s forecasts, should end the year at US$ 89 billion and exports should reach US$ 130 billion.

This way, the trade balance surplus should reach US$ 41 billion. At the end of last year, the CNI estimate was that the surplus would be US$ 43.5 billion, with exports totalling US$ 130 billion and exports US$ 86.5 billion.

The Conjectural Information points out that the rhythm of growth of Brazilian is greater than that of exports. "In the first quarter of 2006, imports totalled US$ 20 billion, a value 24% greater than that registered in the first quarter of 2005," according to the publication. In the same period, exports grew 20.2% and totalled US$ 29.4 billion.

Appreciation of Products

According to the study, a large part of the increase in foreign sales is the result of the 12.1% increase in the average price of products exported by Brazil. The prices of iron ore, metallurgical products, oil derivatives, sugar and coffee rose over 25% in the first two months of this year when compared to the same period in 2005. Price increases were responsible for 63% of the export increase between January and March 2006.

On the other hand, the rhythm of expansion of the value exported has dropped. In the first quarter, the volume grew 7.2% when compared to the same period in 2005, almost half of the 13.3% registered in the same months in 2005 and 2004.

"The reduction in the rhythm of growth of export volumes is largely due to a reduction in the profitability of exports, due to the devaluation of the Brazilian real against the dollar," according to the Conjectural Information report.

The study also states that export profitability dropped 25.6% between 2003 and 2005. Between March 2006 and 2005, the profitability index of foreign sales dropped 8.9%.

CNI

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