Forecast for Brazil: 4.5% GDP Growth with 4% Inflation

Brazilian industry The Gross Domestic Product (GDP) of Brazil should grow 4.5% this year in comparison with last year. The forecast is by the Institute of Applied Economic Research (Ipea). The GDP is the sum of all final goods and services produced in the country in a given period.

The Ipea has increased its forecasts since the last estimate, made in June, which was for growth of 4.3% this year. The figures are included in the Ipea Conjuncture Bulletin.

"What we have identified is greater dynamism in the Brazilian economy in the cases of consumption and investment indices," explained Ipea economist Fábio Giambiagi. "What is more important is that the forecasts point at maintenance of this dynamism for next year," he said.

The forecasted growth in family consumption in 2007 was revised from 5.7% to 6.2%, and the Gross Formation of Fixed Capital, which means investment, rose from 9% to 10%. The GDP growth for 2008, however, has been maintained at the same level as forecasted for this year, 4.5%.

According to Giambiagi, this third bulletin of the year has generated a conservative forecast for the growth of the economy due to uncertainty in the agricultural sector, whose forecasted growth dropped from 4.5% to 3%.

"The country GDP may grow more than 4.5%. The news that is being aired by the press shows optimism regarding the agricultural sector," stated the economist.

"But we have taken into consideration that the GDP growth in the second quarter was good for the economy as a whole, in general lines, but very bad for agriculture. This put us in doubt as to the sector performance in the whole of this year, so we decided to be conservative," he justified.

Also according to the Ipea Bulletin, the forecasted industrial growth was increased from 4.3% to 4.8% and in the service sector the figure was raised from 4% to 4.2%.

The Ipea is also forecasting a higher inflation for 2007. The inflation measured by the Wide Consumer Price Index (IPCA) should end the year at 4%. The previous forecast, in June, was for a 3,4% inflation. The Ipea also expects inflation to be 4.3% in 2008.
 
"In the last three months we had negative surprises brought in from inflation originated in food, which has become a problem for central banks in Brazil and the rest of the world. Food prices, which presented deflation during a few months last year, have already increased by 9% in the last 12 months," said Giambiagi.
 
According to the Institute, the basic rate of interests, the Selic, is expected to be 11.1%, in the last quarter, against 10.7% reported in the previous bulletin. From January to December, the Selic average should be 12%, a little above the 11.9% projections from the last report.

As for the dollar, the expectation has fallen from 1.99 reais for a dollar to 1.95 reais. The average exchange rate for the year, according to the Ipea, should be 2 reais.

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