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Brazil:  Growth Outlook Continues to Improve.   
The propitious combination of lower interest rates and a more favourable exchange rate have provided a strong push for healthy growth in industry.  However, more recent data releases also show that consumption is rebounding as unemployment and lower interest rates provide a backdrop for increased domestic activity.  The healthy recovery this year, however, is also prompting a more rapid deterioration in the trade balance than anticipated, as increased domestic demand is forcing up imports.
Economic Briefing November 2000                                                                     Archive

Economic activity continues pickup.  Economic data releases continued to point toward a further pickup in economic growth in the second half of this year, following up on a 3.6% Gross Domestic Product (GDP) expansion registered in the first half this year.  According to the Fundacação Instituto de Pesquisas Econômicas (FIPE), the seasonally adjusted weekly indicator of economic activity (IMEC), which monitors economic performance in São Paulo, was up 6.2% in the week from 8 to 15 August over the same period last year.  Declining national unemployment (down from 7.1% in August to 6.7% in September) combined with increased domestic credit availability and lower interest rates is driving consumption.  In fact, the key consumption-related indicator of the IMEC registered a 13.3% increase for the same period, while electricity consumption grew 5.2%.

Industry humming along.  Industrial production also continues to evolve favourably.  According to National Statistical Institute (IBGE), seasonally adjusted industrial production grew by 5.2% in September over the same month last year.  Capital goods output grew by 24.0%, driven by double digit growth in mechanical, electrical and transport equipment production.  Intermediate goods output expanded by 5.0%, while on the downside consumer goods production contracted by 1.0 %, due to declines in output of food, beverages and leather goods.  However, industrial production growth is slowing, owing to the higher comparison base in September 1999, when economic recovery was beginning to take shape.  The growth registered in September was well below the numbers reported for July (+8.7%) and August (+6.4%). 

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 strong industrial growth and a consumption pickup drive the economic rebound. 

Temporary inflationary pressures abate.  Inflationary pressures observed in July and August have subsided.  According to the Fundação Instituto de Pesquisas Econômicas’ (FIPE) monthly consumer priced index, prices remained stable in October (+0.01%), which brought down the annual inflation rate to 6.2% from 7.4% in September.  The 14.5% increase in transportation costs and a 9.4% spike in education prices were compensated by more moderate increases in clothing prices (+2.4%) and personnel expenditures (+2.2%).  Transportation prices are still adjusting to recent hikes in government-managed oil prices, which are trailing market developments..  Education prices were up as a result of the beginning of the new school year.  The inflation figures released by IBGE reflect the favourable price movements.  According to IBGE’s 10 November release, monthly inflation inched up just 0.1% in August, which brought the annual rate to 6.7%.  

 

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