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Economy
set for healthy growth this year. The most recent
industrial production data released by the National Statistical Institute
(IBGE) indicate that economic activity remained strong through the end of
last year. According to IBGE, seasonally adjusted industrial
production grew 6.5% in 2000. The final result was even a shot above
the Consensus figure of 6.2%. Capital goods production was up 12.4%
in 2000, driven by strong output in transport and mechanical equipment,
which grew by 19.8% and 17.9% respectively. Intermediate goods
production expanded 6.8%, while consumer goods grew a more moderate 3.3% -
despite 21.7% growth in durable consumer goods production. The
National Confederation of Industry (CNI) claims that in January business
confidence reached its highest level since July 1998, driven up by
optimism about lower interest rates this year and a lessening of concern
over the Argentine debt situation. The Consensus Forecast sees
growth moderating this year as a result of a higher comparison base in
2000, but to remain healthy.
Consumption
growing strongly. According to IBGE, unemployment dropped
to 4.8% in December, down from 6.2% in November and the lowest level since
1997. The favourable trend of declining inflation and decreasing
interest rates remain the key drivers behind the current healthy
consumption growth. According to the Retail Association of São
Paulo (ACSP, Associação Comercial do Estado de São Paulo), retail sales
as measured by debit card payments continued to accelerate in January,
with growth up 25.0% over January last year. Data from the Central
Bank corroborate the pickup in consumption. According to the Central
Bank’s November consumption data, seasonally adjusted retail sales in
the São Paulo metropolitan area grew 9.1% over November 1999. In
addition, the Federação e Centro do Comércio do Estado de São Paulo (FECESP)
confirms good prospects for healthy consumption growth this year, stating
that consumer confidence rose 10.3% in January over the previous month.
Subdued
inflation encourages Central Bank. According to IBGE,
significant inflationary pressures remained absent in January, as consumer
prices inched up a 0.57% notch. The restrained January increase
again lowered the annual rate of inflation, which dropped to 5.9%, well
above the 4.0% of the Central Bank target for this year. Panellists
expect the downward trend in inflation to persist throughout this year as
lower oil prices and a strong harvest are expected to contain price
increases. Encouraged by the favourable inflation outlook, the
Central Bank Monetary Policy Committee (COPOM, Comitê de Política
Monetária)
decided to lower the benchmark overnight rate (SELIC) from 15.75% to
15.25%, following the 75 basis point cut in December. The decline in
inflationary concerns is likely to provide the backdrop for further
monetary easing by the Central Bank this year. In fact, this
month’s Consensus Forecast indicates that the SELIC rate is likely to
drop further by the end of this year.
Trade
balance remains concern for this year. The trade balance
continued to deteriorate in January driven by strong imports, which
increased 40.6% over January 2000. As a result, the annual trade
deficit widened further to US$ 750 million in January. While exports
continue to grow at a healthy pace (up 31.4% from January last year),
import growth is now accelerating as consumption picks up and investment
rises.
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