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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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