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Brazil’s New-Found Prosperity Is Powering Economy

Assembly line of Fiat Brazil in Betim Brazil's 6% industrial production growth in 2007 over the previous year was mainly boosted by the domestic demand for consumer goods, especially durable ones, like vehicles and household appliances. This evaluation is by the coordinator at the Brazilian Institute of Geography and Statistics (IBGE), SÀ­lvio Salles.

According to a study by the National Confederation of Industries (CNI), however, disclosed last week the growth of Brazilian industrial sales reached 5.1% last year as against 2006. Heads at the organization also attribute this performance to domestic sales.

"What sustained the growth in 2007 was the domestic market. And that is the factor that should continue boosting industry this year," stated Paulo Mol, an economist at the CNI.

The result calculated by the IBGE is the best since 2004, when the rate was 8.3%. "The labor market conditions are favorable to greater consumption of goods by the population. There has been an increase in occupation and income and the offer of credit has been sustained, and the reflex may be felt in the extension of payment spans and in the reduction of interest rates, which has been sustaining consumption. And what is best is that, up to the moment, there are no signs of greater default, which is now stable," he evaluated.

In 2007, the IBGE identified greater production in 21 activities, in 65 of the 66 sub sectors and in 66% of the products researched. One of the greatest rates was in capital goods, which includes machinery and equipment for industry. The sector posted growth of 19.5%. Consumer goods grew 4.7%, with durable goods registering expansion of 9.2%, semi durable and non-durable goods, 3.4%, and intermediary goods, 4.9%.

Among the activities, the performances with greatest impact over the global average of industrial growth were vehicles, up 15.2%. "The auto industry showed a reduction in exports in 2007 and ended up leading the performance among industrial sectors supported mostly by the greater domestic demand," stated Sí­lvio Sales.

The CNI forecast is that industry should continue growing in 2008 and the percentage of expansion should be 5% over 2007.  Paulo Mol believes that the crisis in the United States should certainly affect Brazil, as it should all countries in the world, especially the emerging markets, but added that it is still a little early to forecast the intensity of the shock.

Economist Renato da Fonseca agrees with Paulo Mol. "The crisis should have a negative impact on growth, but not so big. We must wait to see the size of the problem."

While credit is accessible to Brazilian consumers, they say, industry should continue selling. "The sectors that influenced the growth the most in 2007 were those answering to credit, like vehicles, furniture and garments. If instalments continue fitting in people's pockets, consumption should continue growing," stated Mol.


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