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Fear of US Recession Lowers Brazil’s Growth Expectation from 4% to 3.5%

The latest estimate from Brazil’s Central Bank (BC) sees Brazil growing 3.5% this year instead of 4% as the Brazilian bank authorities were betting until now.

Brazilian analysts had already lowered their own expectations months ago, but the government kept a more optimistic forecast.

Finance Minister, Guido Mantega, continued insisting on a growth rate of 4% this year, even after the economy’s weak performance in the second quarter, when the GDP grew a mere 0.5 percent.

The new BC’s data were released today, September 28, and are concentrated in the agriculture and industry sectors, according to the most recent Quarterly Inflation Report.

The Central Bank has also lowered its inflation forecast for this year from 3.8% to 3.5% . The government’s target for the inflation in 2006 is 4.5%.

In the case of the GDP (Gross Domestic Product) the Central Bank’s new forecast is still higher that the market’s expectations. According to this week’s Focus report, which shows the forecast by the Brazilian financial institutions, the expectation is that the economy will grow 3.09 percent in 2006.

One important information for the BC is the fear that the US’s monetary tightening has been excessive. They are afraid that the American economy might even get into a recession in 2007.

The report also highlights that oil prices continue to be very fickle and that this uncertainty plays a big role in the market’s edginess.

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