|
Higher inflationary
expectations easing amidst exchange rate appreciation
According to the National Statistical
Institute (IBGE), consumer prices rose 0.65% in December over November.
The December figure was above the 0.44% Consensus figure and brought the
annual inflation rate to 7.7%, which was well above the Central Bank’s
inflation target of 6% for 2001. The Central Bank believes that seasonal
price pressures in the coming months, resulting from higher education
spending and increases in gas and electricity prices, are likely to
subside and, when taken together with a less pronounced inflation
pass-through via a stronger exchange rate, will pave the way for a more
favourable inflationary setting 2002. Monetary authorities have set an
inflation target of 3.5% for this year. Even though participants have
adjusted their inflation forecast downward by 0.3 percentage points, in
light of improved prospects for more moderate price increases, the
forecast for this year still remains well above the Central Bank’s target.
External accounts improve
as imports drop amidst lower economic activity
In December, the annual trade balance surplus
widened further from US$ 1.6 billion in November to US$ 2.7 billion. The
2002 trade figure represented the first surplus observed since 1994. The
strengthening of the trade balance throughout the year reflected a decline
in imports, which dropped 0.4%. Both the exchange rate depreciation and
the deceleration of domestic economic activity were responsible for the
downturn in imports. Meanwhile, export growth remained strong with the
expansion reaching 5.7% in 2001. The global economic slowdown provided
for some downside pressure on export growth; particularly manufactured
exports to the Argentine and European Union markets decelerated while
basic goods export growth remained healthy. Panellists expect the current
pace of export expansion to persist through this year with growth reaching
5.7%. Import growth is anticipated to remain subdued - despite improved
prospects for a stronger exchange rate – with growth likely to accelerate
moderately. As a result, the trade balance surplus is anticipated to
widen further this year.
As a result of the improving trade balance,
the current account deficit has also exhibited a narrowing trend, with the
annual imbalance dropping from US$ 25.3 billion in October to US$ 24.4
billion in November 2001. Offsetting any further improvement was the
persistence of a US$ 27.6 billion annual deficit in the services and
income balance, which was unchanged over the same month last year.
Foreign direct investments of US$ 22.3 billion remained an important
source of funds to finance the current account deficit. Consensus
Forecast participants expect the deficit to have narrowed further in the
last month of the year with the imbalance dropping off to US$ 23.9
billion. The strengthening of the trade balance this year is likely to
provide further impetus to an improvement in the current account.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
|
