Brazil’s Lula Orders 5% Growth, But Doubting Thomases Abound

Brazil’s economy grew 3.2% in the third quarter from a year earlier, compared with 1.2% in the second quarter, the government revealed Thursday in Rio de Janeiro.

Apparently lower interest rates helped boost consumption and companies to invest in expanding capacity.

The announcement follows Wednesday’s Central Bank decision to cut the benchmark lending rate for the twelfth time to 13.25% percent in an attempt to speed growth.

Family consumption expanded 3.4% over a year ago, the twelfth consecutive quarterly gain helped by a 4.6% increase in wages, revealed official statistics.

However Finance Minister Guido Mantega speaking to reporters in Brasí­lia said growth in the quarter was "disappointing" and that he expects past interest rate reductions to boost economic expansion next year. He expects growth of 3.2% in 2006.

"Economic reports already signal a pickup in economic activity this quarter," said Mantega adding that weak industrial activity lowered growth in the July-to-September period. The economy grew a seasonally adjusted 0.5% from the second quarter. Growth accelerated to 2.3% for the 12 months through September, from 1.7% the previous quarter.

Economists in a weekly Brazilian central bank survey taken November 24 and released November 27 lowered their median forecast for growth this year to 2.94% from as high as 3.6% in August. The bank’s survey shows that economists expect growth to accelerate to 3.5% in 2007.

President Luiz Inácio Lula da Silva, re-elected to a second four-year term in October, urged his economic team to target 5% annual growth starting in 2007, a goal that business leaders are not convinced it can be reached.

"That would be our desire but very distant from our expectation," Ioschpe, chief executive officer of Iochpe- Maxion, Brazil’s biggest maker of railroad cars, said in an interview in São Paulo. He forecasts growth of about 3% this year and as much as 4% in 2007.

In a similar line the International Monetary Fund called on Brazilian president Lula da Silva to address "structural reforms" to avoid the current "anemic" economic growth rates.

"Brazil is in a decisive moment. The continuity of macroeconomic equilibrium and structural reforms should enable a sustainable growth. But the lack of reforms will condemn Brazil to anemic growth rates and growing social unrest", warned IMF official Teresa Ter Minassian during a forum on the Brazilian economy in Brasilia.

The IMF official said a reform is needed to eliminate the proliferation of taxes as well as an end to the "fiscal war" among Brazilian states regarding goods transport and attracting investments.

Ter Minassian, who is a taxing expert, also recommended Brazil must continue lowering its GDP/liquid debt rate which currently stands at 49.5%

Mercopress

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