Wednesday, August 11, 2010

Brazil Govt Holds 2010 Economic Growth View At 6.5%

Brazil's government is maintaining its projection for the country's 2010 economic growth at 6.5% despite a recent slowdown in industrial activity, the finance ministry said Tuesday.
Growth, however, is seen slowing to about 5.5% next year, the report said.
In its latest bi-monthly economic report, "Brazilian Economy in Perspective," the ministry said it expects the economy to grow at an average annual rate of around 5.7% between 2010 and 2014.
Speaking after the release of the report Tuesday, Brazilian Finance Minister Guido Mantega said the country's economy would settle at a "cruising speed" in the second half of the year after a temporary slowdown late in the second quarter.
"We're in a cycle of growth starting in 2010 that can average 5.7%," Mantega said. "This is perfectly possible without generating inflation."
He estimated the Brazilian economy's potential growth, at which it might expand without price pressure, at between 5% and 6%, and said Brazil was on a path of sustainable growth of between 5.5% and 7.5% for the coming years depending on the international scenario.
The finance ministry's 2010 growth projection, meanwhile, was slightly lower than recent market forecasts, which put 2010 growth at about 7.1%, according to central bank market surveys.
Brazil's central bank has raised the country's reference Selic rate by 200 basis points to 10.75% annually so far this year in an effort to head off perceived inflation pressure.
Meanwhile, in its report Tuesday, the finance ministry maintained its own projection for 2010 IPCA consumer price inflation at 5.2%.
Brazil produced 12-month IPCA inflation of 4.6% through July under the influence of falling local food prices.
"Inflation accelerated in the beginning of the year but it has already fallen below past levels and is below market expectations," Mantega said. "This shows that we haven't been seeing demand inflation."
The government has set targets for IPCA inflation at 4.5% for 2010 and 2011.
In addition to those forecasts, the government widened its projection for the country's 2010 current account deficit to $46 billion from $42 billion seen previously. The government said the deficit would end the year at the equivalent of 2.3% of gross domestic product.
For 2011, the government widened the country's forecast current account deficit to $56 billion from $50 billion seen previously. That figure should equal approximately 2.6% of GDP, the finance ministry report said.
The deficit forecasts were based on projected trade surpluses of $17 billion in 2010 and $9 billion in 2011.
Brazil has seen widening current account deficits over the past year under the influence of an appreciating local currency.
According to the latest report, the pressure for appreciation of the local currency local should begin to abate in coming quarters under the effect of a recent increase in risk aversion in international markets.
To offset the current account deficit in the meantime, the government said it expected the country would receive $45 billion in foreign direct investment this year. That projection was higher than recent median market forecasts of around $38 billion.
Regarding public sector accounts, the finance ministry report released Tuesday projected Brazil's net public sector debt would end the year at 39.6% of GDP. That projection was down from a figure of 40.7% seen in the ministry's previous report. For 2011, the finance ministry projected debt would decline to 36.8% of GDP. The ministry's previous projection was 38.1%.
The latest debt projections are based on the assumption that the government complies with its 2010 operating budget surplus target equivalent to 3.3% of GDP.
Meanwhile, a hoped-for elimination of Brazil's nominal public sector deficit, which includes the impact of interest payments on debt, was pushed back to 2014, according to the report. The finance ministry said the nominal deficit would end 2010 at around the equivalent of 1.9% of GDP.
In part, public accounts have been influenced by a still-heavy social security administration deficit, which is seen ending 2010 at around 1.3% of GDP.
The government, however, reported that for the first time on record, this year public sector investment would top current government administrative spending.
The report said that through the month of June this year the ratio of investment to current spending reached 108.6%.

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