Economic growth healthy.  GDP increased 3.1% in the first quarter compared to the same period the year before and confirmed that that the Brazilian economy has recovered fully from last year's downturn provoked by the Real devaluation in January.  Growth continues to be driven by improved confidence in the domestic economy, declining interest rates and healthy global demand.  The 3.1% growth registered in the first quarter of this year was the second year-over-year quarterly increase since December 1999, when the economy expanded by 3.6%.  First quarter growth was mainly driven by a 5.7% expansion in first quarter industrial activity over the same quarter last year.  The agricultural and services sector performed less favourably.  While services growth reached a more modest 2.3%, activity in the agricultural sector declined 0.8% over the same quarter in 1999.

More recent indicators confirm the upswing in economic activity.  At the beginning of this month, the National Statistical Institute (IBGE) reported that industrial production surged by 6.7% in April compared to the same month last year.  The April industrial data is a clear indication that companies are beginning to invest more.  On a seasonally adjusted basis, capital goods production grew by 9.5% followed by a strong performance in intermediate goods production at 7.1%.  Consumer good production lagged behind with a 2.0% expansion.  Additionally, business confidence is rebounding as a result of improved economic conditions.  In the April industry survey conducted by São Paulo's Industrial Federation (FIESP/CIESP), 59% of the surveyed companies expected sales to increase from April to June and 57% anticipated orders to rise.  Consensus panellists expect industry to continue to perform strongly throughout the year with industrial production growing a healthy 5.2% rate.

The Fundacação Instituto de Pesquisas Econômicas (FIPE) reported that economic activity in São Paulo is also rebounding.  In April, the FIPE seasonally adjusted monthly indicator of economic activity (IMEC) was up 8.0% over the same month last year, the strongest increase since March 1997.  The April data also showed that consumption appears to be recovering, with São Paulo retail sales increasing 15.0% over April last year.

Consensus Forecast panellists continue to perceive the Brazilian growth prospects as favourable.  Economic growth is expected to continue to pick up this quarter, reaching 3.4% and accelerating further by 4.1% and 3.1% in the third and fourth quarter respectively.  Growth for the year is anticipated to be 3.4%, up from 3.3% last month.

Inflation forecast marked down.  According to IBGE, consumer prices experienced one of the smallest monthly increases in April since the adoption of the Real Plan.  Prices were up only 0.4% over March.  The April data indicates that inflation has remained subdued with prices increasing by an annual rate of 6.7%, in spite of the pick up in economic activity and renewed pressure on fuel prices.  As a consequence, panellists have marked down their 2000 inflation projections significantly.  After last month's downward revision, Consensus participants have again adjusted their forecasts from 6.6% last month to 6.0% in this edition.  The forecasted rate remains well below the actual Central Bank’s target rate of 8.0% for this year. 

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