on healthy path. On 30 March, the National Statistical
Institute (IBGE) released revised gross domestic product (GDP) figures for
last year. The new data show that the economy grew 4.5% in 2000, up
from 4.2% previously reported. More recent data releases indicate
that the positive growth trajectory will persist in the first 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 activity in São Paulo, was up 6.5% in February
over February 2000. The FIPE data also show that lower national
unemployment (6.4% in February) combined with increased domestic credit
availability appears to be driving strong growth in consumption. In
fact, the key consumption-related indicator of the IMEC increased 17.3%,
while electricity consumption grew 6.7% over February last year.
Furthermore, the Retail Association of São Paulo (ACSP, Associação
Comercial do Estado de São Paulo) reports that retail sales as measured
by debit card payments continued to accelerate in March, with sales up
10.4% over March last year.
addition, according to IBGE, seasonally adjusted industrial production
grew 8.0% in January over the same month last year.
Brazilian firms continue to expand their investment activities as
evidenced by a 20.1% growth in capital goods production over the same
month last year, which compares to a 6.2% and 6.9% expansion in consumer
and intermediate goods output respectively. The
strong industrial output growth was propelled principally by the
production of electrical, mechanical and transport equipment.
February trade data further confirm the pickup in investment, with
annual capital goods imports up 5.5% over the same month last year.
to this month’s Consensus Forecast, the economy is expected to continue
to register strong growth rates in the next three quarters.
Nevertheless, growth will moderate slightly towards the end of the
year due to the higher comparison base in 2000 and concerns are mounting
among panellists about the growing trade balance deficit and the potential
spillover effects on the currency, inflation and interest rates of the
current Argentina crisis.
Therefore, even though current economic developments and the growth
outlook in general remain favourable, the annual Consensus Forecast for
GDP growth both this and next year was revised downward. As a
result, this year’s forecast remains below the government’s projection
of 4.5% growth.
volatility raises concerns. Concerns about the Argentina
crisis spilled over to other economies in the region last month. In
Brazil, the effect was felt principally through increased volatility in
the real, which depreciated by 5.4% in March to 2.16 real to the US$, the
lowest level since March 1999. In early April, the real remained
stable closing at 2.16 real to the US$ on 6 April. The recent
weakening of the real has brought the rate of depreciation this year to
10.7%. The real weakness this year has prompted several revisions to
the Consensus Forecast since the January edition. The current
volatility is likely to subside as Argentina related jitters ease, with
the currency appreciating again towards the end of the year.
Bank raises interest rates. Concerns about the potential
pass-through of accelerated currency depreciation to domestic prices
prompted the Central Bank to raise the benchmark SELIC interest rates 50
basis points to 15.75% on 21 March. The monetary tightening
represents the first increase in interest rates since March 1999 and was
intended to raise credibility of the Central Bank’s monetary policy.
Assuming that the current Argentina-induced currency pressures subside,
higher interest rates should serve to remove other factors driving the
current real depreciation most notably direct price pressures associated
with the up-tick in economic activity and the deterioration in external
balances, which would be forestalled by a decline in demand in imports.