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Brazil:  Positive Growth Trajectory Confirmed   
The Brazilian economy continues to perform well.  In addition, key consumption and investment related indicators point towards a continued pick up in economic activity in the last quarter.  Despite the heightened domestic activity, however, inflation remains on track with Central Bank targets, which should permit a further easing of monetary policy next year. The resultant decline in interest rates is likely to further propel growth.
Economic Briefing December 2000                                                                     Archive

Growth pace quickens in Third Quarter.  The National Statistical Institute (IBGE) reported last month that the pace of economic activity continued to quicken in the third quarter.  The economy expanded 4.5% in the third quarter over the same quarter in 1999, following the 3.7% and 3.4% expansions in the first and second quarter respectively.  The third quarter reading confirms that the Brazilian economy is set for a healthy recovery from last year when the economy grew just 0.8%.  The government believes that the economy will expand 4.0% this year, driven by strong export growth and a healthy recovery in industry.

The manufacturing industry outperformed other sectors with annual growth of 4.5% in the third quarter, while services and agriculture grew by 3.8% and 2.2% respectively.  The strongest performance by sub-sector was observed in mining and communications, which grew by 10.6% and 19.0% respectively over the same quarter last year, while on the downside transportation and crop output grew a modest 0.9% and 1.0% over the same period.

More recent data point towards a further pickup in economic growth in the final 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 6.3% in October over October 1999.  The FIPE data also show that lower national unemployment (6.8% in October) combined with increased domestic credit availability and declining interest rates appear to be driving a recovery in consumption.  In fact, the key consumption-related indicator of the IMEC registered an 8.5% increase for the same period, while electricity consumption grew 7.0% over October last year.

Industrial production on healthy expansion path.  October industrial production data confirm that output growth remains strong.  According to IBGE, seasonally adjusted industrial production grew by 5.3% in October over the same month last year, led by strong capital and durable goods output, which were up 13.3% and 16.1% respectively.  Intermediate goods production rose 5.4%, while consumer goods output expanded by 3.0%.  However, industrial production growth appears to be levelling off, owing to the higher comparison base last year.  While the October growth rate was slightly above the September rate of 5.3% it remained below the strong growth rates registered between June and August.  Growth is expected to remain strong next year reflecting expectations that export performance will be favourable and domestic demand will pick up further.   

The healthy rebound in industry, strong external sector, dropping unemployment and resuming consumption has prompted panellists to maintain their positive outlook for the economy this year, albeit slightly below the government’s 4% growth estimate.  Furthermore, growth will remain healthy next year driven by a more favourable interest rate environment and exchange rate developments that will facilitate export growth.


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