Economy set for healthy growth.  According to the revised Gross Domestic Product (GDP) released by the National Statistical Institute (IBGE) in early October, GDP expanded by 3.6% in the first half of this year instead of the 3.8% reported in August.  First and second quarter GDP figures were also revised downward slightly from 3.8% and 3.9% respectively to 3.6% and 3.4%.

Industry rebounding strongly.  While recovery has been evenly distributed along sectoral lines, industry is experiencing the strongest rebound.  According to IBGE, seasonally adjusted industrial production grew by 6.3% in August over the same month in 1999.  Capital goods production experienced the strongest boost with a 23.4% expansion, while intermediate and consumer goods production grew by 5.7% and 3.1% respectively.  Key industrial sectors driving the strong growth were mechanical (+24.4% year-over-year) and transport equipment (+17.6% yoy) as well as rubber (+20.5% yoy).  However, industrial production growth is beginning to slow, owing to the higher comparison base in 1999, when the recovery began to pick up in September.  The August expansion rate was below the numbers reported for June (+7.2%) and July (+8.6%).

Declining unemployment (down from 7.2% in July to 7.1% in August) together with increased domestic credit availability and declining interest rates are likely to drive a consumption rebound in the second half of this year.  According to the São Paulo Retail Federation (FCESP), seasonally adjusted real retail sales in the São Paulo metropolitan area grew 7.4% in July over the same month last year.  Durable consumer goods sales were up 11.3% for the same period, while automobile sales and concessions expanded 28.4% and 34.1% respectively.  Nevertheless, FCESP reports that consumer confidence dropped for the first time since November 1999.  The 5.7% decline in August was attributed mainly to the recent hikes in government-regulated prices and the recent corruption scandal involving a close advisor to president Cardoso.

The government believes that the economy is set to recover strongly in 2000 from last year’s slump, with growth anticipated to reach 4%, as lower interest rates and strong industrial growth drive the economic rebound.  This month’s Consensus Forecast survey indicates that panellists continue to factor the improved outlook for Brazil into their forecasts, expecting economic activity to pick up strongly in the second half.  Furthermore, the growth projections for this year are gradually impinging on the government forecast. Moreover, strong export growth and the rebound in domestic economic activity are expected to boost the economy further.

Central Bank optimistic on inflation.  Price pressures experienced in July and August appear to have abated.  According to the Fundação Instituto de Pesquisas Econômicas’ (FIPE) monthly consumer priced index, prices rose by 0.27% in September, a substantial drop from the 1.4% and 1.5% hikes in July and August respectively.  The September increase brought the annual inflation rate to 7.4%.  The major thrust behind the September price increase was accounted for by rise in transportation and food costs, which rose by 17.7% and 9.4% respectively.  Transportation prices continued to experience some upward pressure as a result of the recent hikes in government-managed prices in response to higher oil prices.  Similarly, food prices remained under some pressure brought about by lower supply due to harsh weather conditions earlier this year.  

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