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Brazil:  Steadily Shifting into Higher Gear
Industrial production growth is steadily moving into double digits driven by a strong external sector.  The lower interest rate environment resulting from successive easing this year by the Central Bank is further fostering favourable conditions for industry but also is prompting a recovery in consumer spending.  The stronger than expected economic recovery, however, is also raising the prospects for somewhat higher inflationary pressures.
Economic Briefing September 2000                                                                    Archive

Growth picking up further momentum.  Economic activity continues to gain speed, following the healthy 3.9% Gross Domestic Product (GDP) expansion registered in the second quarter of this year.  According to the Fundacação Instituto de Pesquisas Econômicas (FIPE), the seasonally adjusted monthly indicator of economic activity (IMEC), which monitors economic performance in São Paulo, was up 7.6% in July over the same month last year.  The IMEC further shows that consumption is experiencing a strong rebound.  The key consumption-related indicator of the IMEC registered an 11.2% increase in July over the same month last year and electricity consumption grew 4.5% for the same period. 

Favourable export conditions and growing domestic demand are providing a strong push for industry.   According to the National Statistical Institute (IBGE), seasonally adjusted industrial production expanded 8.5% in July over the same month last year.  Mechanical and transport equipment production registered the strongest growth rates of 22.0% and 27.2% respectively.  Electrical equipment, furniture and rubber production also expanded at healthy double-digit growth rates.

Interest rates remain unchanged as Central Bank monitors inflation.  In its August meeting the Central Bank Monetary Policy Committee (COPOM, Comité de Política Monetaria) left the benchmark overnight rate (SELIC) unchanged following three consecutive cuts since June, which lowered the rate from 18.5% in May to 16.5% in August.  Price pressures resulting from utility rate hikes and upward adjustments in state fuel prices to accommodate higher oil prices are likely to affect August and September inflation data and as a result the COPOM has decided to forestall further easing until the results are known.  While IBGE has not yet released August data, figures from other sources indicate that price pressures augmented in August.  According to FIPE, consumer prices in São Paulo rose 1.5% over July, which is equivalent to an annual rate of 20.3%.  Thus, on an annual basis prices increased 8.1% over August 1999, the highest level since the seasonal spike over the Christmas holidays.  High oil prices and crop damage from a hard winter were the key drivers behind the large hike in August consumer prices.  Transportation prices increased 19.1% over the same month last year, while food prices added 8.8% over August 1999.  Given the strong upward push in prices and recent historic highs in oil prices, the Central Bank is likely to maintain a more cautious stance on interest rates.


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