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Economy
on healthy growth path. According to the National
Statistical Institute (IBGE), industrial production remained strong in
November, growing 5.0% over the same month in 1999. The strong
expansion in industrial output was driven principally by 14.1% growth in
the production of capital goods and offset by a 4.0% expansion in
intermediate goods output. Consumer goods production was up 3.1%
over the November 1999, boosted by a 18.0% expansion in durable consumer
good output whereas semi and non-durables contracted 0.4%. Key
industrial sectors driving the strong growth were mechanical (+23.2%
year-over-year) and transport equipment (+17.6% yoy) as well as rubber
(+20.5% yoy). 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.
Despite the slowing of industrial production growth, panellists raised
their forecast for industrial production growth in 2000.
Nevertheless, growth is anticipated to slow this year but to remain strong
as a result of continued healthy export growth and a further pick-up in
domestic demand.
Consumption
growth strengthening. According to IBGE, unemployment hit
a 36-month low of 6.2% in November, down from 6.8% in September. The
drop in unemployment together with increased availability of domestic
credit and declining interest rates continued to drive consumption during
the second half of 2000. According to the Retail Association of São
Paulo (ACSP, Associação Comercial do Estado de São Paulo), retail sales
as measured by debit card payments were up 11.7% in December over the same
month in 1999. Data from the Central Bank corroborates the pickup in
consumption. According to the November figures, accumulated
automobiles sales grew 18.6% over the same month in 1999.
The
continued healthy expansion in industrial output and the strong
consumption rebound has impelled participants to maintain their positive
outlook for the economy for the remainder of 2000 and this year.
This month’s Consensus remains just below the government’s 4.0%
growth estimate.
A favourable downward trend in interest rates and a more
competitive exchange rate are likely to further propel economic growth
this year.
Central
Bank lowers benchmark interest rate as inflationary pressures remain
absent. According to IBGE, inflation remains contained,
despite some seasonal pressures. In December, consumer prices rose
0.6% over November, which brought the annual rate to 5.97%, in line with
the 6.0% Central Bank target. The downward trend in inflation
through the end of the year and improved prospects for lower inflation
this year, driven particularly by lower oil prices and by an anticipated
healthy agricultural harvest, prompted the Central Bank Monetary Policy
Committee (COPOM, Comitê de Política Monetária) to lower the benchmark
overnight rate (SELIC) from 16.5% to 15.75%. Panellists’ forecasts
are consistent with a scenario of lower inflation this year, which is
anticipated, nevertheless, to be above the Central Bank’s 4.0% target.
The expected drop in inflation is likely to provide the conditions for
further monetary easing by the Central Bank. As a result, the SELIC
rate is expected to drop further, according to this month’s Consensus
Forecast. The trend of declining interest rates is likely to be
further strengthened by Standard and Poor’s decision to upgrade
Brazilian sovereign ratings from B+ to BB- in early January. The S
& P statement highlights an increased confidence in the government’s
fiscal management and improved inflation targeting by the Central Bank as
key determinants for the upgrade.
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