Brazil Pleasantly Surprised by Year-End Numbers: Industry GDP Is Up 5.3%

Brazilian industry Brazil's processing industry should end this year with a 5.8% growth rate and contribute to a 5.3% expansion of the Brazilian economy. The estimates were disclosed by the National Confederation of Industries (CNI) this Monday, December 18, in BrasÀ­lia.

"This year was marked by good indicators, which is surprising, given the initial projections," said the president at the organization, Antonio Monteiro Neto, during a year-end press conference in the Brazilian capital Brasí­lia. The GDP for the industry as a whole, including industrial services, civil construction and mining, should rise 5.3%.

The CNI repeatedly revised its forecasts as the year went by. In April, it estimated growth rates of 4.2% for the GDP and 4% for the industry. The rates increased to 4.7% and 5%, respectively, in September, prior to reaching their current levels, a few days before the end of the year.

"The GDP is going to grow by twice the average rate in recent years, and industry is driving this growth, as it is expanding more than the other sectors," stated Monteiro Neto.

Contrary to what happened in previous years, the foreign market did not influence the rise in industrial output. Instead, domestic demand played a key role this year. According to the CNI president, there has been a strong increase in consumption by Brazilian families and government.

This trend was caused by reduced unemployment rates, rising income – including government income transfer programmes -, lower interest rates and a strong expansion of credit supply.

"The growth of formal employment recorded in 2007 has interrupted a series of years during which informality was on the rise. This was coupled with a reduction in unemployment rates," sad Monteiro Neto.

"Furthermore, the real interest rate is currently in the single-digit range. In Brazil, this is a noteworthy achievement," he asserted. He also said that the credit-to-GDP ratio is now 34%.

With regard to foreign trade, the CNI estimates that Brazil is going to end the year with exports at US$ 160 billion and imports at US$ 120 billion, resulting in a balance of trade surplus of US$ 40 billion, which is lower than the US$ 46.1 billion posted last year, as foreign sales grew less than did purchases.

The main reason for the reduced surplus is the appreciation of the real (Brazilian currency) against the dollar, which makes Brazilian products more expensive abroad, and imported products cheaper in Brazil.

The CNI estimates that the trade balance should decrease even further in 2008, with exports at US$ 175 billion, an increase of 9% compared with 2007, and imports at US$ 150 billion, a growth of 25%. Under this forecast, the surplus would be US$ 25 billion.

Besides the exchange rate issue, the CNI analysts are not expecting foreign demand to rise next year, given the possibility of a retraction in the United States economy, which might spread to the rest of the world.

Domestic consumption, however, should remain high. So much so that the CNI is forecasting an increase of 5% in industrial production and in the Brazilian GDP for 2008. Even though production is now pushing the limit of the industry's installed capacity, the CNI is not expecting any inflationary pressure.

This is so because the organization forecasts an increase of 14% in public and private investment next year, leading to the highest investment/GDP ratio recorded in this decade and resulting in greater production capacity.

Furthermore, Monteiro Neto is betting that imports are going to help hold back prices. In other words, should Brazilian products become too expensive, then consumers are going to resort to the imported ones.

For the time being, however, although imports of durable consumer goods grew 50% this year, the bulk of foreign purchases is still comprised of capital goods and semi-manufactured products. "These industry sectors are importing so as to become more competitive," said Monteiro Neto. "This does not imply that national production is being displaced," he added.

The CNI warns, however, that in order for the Brazilian industry and the economy to continue growing in the long term, heavy investment in infrastructure, reduction of the tax burden, improvement of the business environment and increase in qualified workforce will be required.

"For the country to continue growing, infrastructure must grow as well, otherwise the economy will become tensioned," said the economist-in-chief at CNI, Flávio Castelo Branco. "The country has improved, but it needs to improve further," he asserted.

One of the main concerns for industry members is energy supply. They favor prompt implementation of the projects of the Growth Acceleration Program (PAC) established by the federal government.

Monteiro Neto also stated that the CNI, by means of the National Service of Industrial Education (Senai) and of the Social Service for Industry (Sesi), is investing heavily in basic and advanced education.

When it comes to taxes, though, the sector does not yet know what to expect after the end of the Temporary Contribution on Financial Transactions (CPMF). But to the CNI president, other taxes should not rise. To him, only the tax increases that were already scheduled should take place.

Anba – www.anba.com.br

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