Brazilian Growth Overestimated

By Jaylan Boyle, Senior Reporter

RIO DE JANEIRO – After months of bullish forecasts from analysts in Brazil and around the world, the economic recovery has proven to have progressed at a significantly slower rate than has been anticipated over the last financial quarter.

This is expected to leave the government no choice but to leave the benchmark interest rate at it’s current record low for the foreseeable future.

Third-quarter gross domestic product growth was 1.3 percent, following on from a second quarter figure of 1.1 percent. The recently released figures could prove slightly embarrassing for the government; as late as Wednesday Finance Minister Guido Mantega was quoted as predicting confidently that the Brazilian economy would be seen to have grown as much as 8 percent (annualized).

“The economy is growing at a much more moderate trend than the projections pointed to,” said Newton Rosa, economist at SulAmerica Investimento fund, based in Sao Paulo. “But this has a positive side in that it shouldn’t put pressure on the central bank to raise interest rates in the short term.”

Many commentators were predicting interest rates would be raised again, especially in view of a statement that was released shortly after last Wednesday’s meeting of the Brazilian Reserve Bank’s rate setting panel. Although the panel left interest rates at their current level of 8.75 percent, the statement was interpreted by most as a warning to expect that level to rise in the near future, a possibility that must surely now have been quashed by the latest growth figures.

However, there is a definite positive spin to the modest growth figures that the Banco Central do Brasil (Central Bank) has been quick to leap on: An economy that is not growing out of control will not put any unmanageable pressures on itself. “The numbers corroborate the central bank’s message that the economy is developing without generating any pressures,” said Juan Jensen, an economist at Sao Paulo’s Tendencias group.

In other news to put a slight dampener on the exclusively good news of recent months, some commentators have raised concerns at the state of the country’s current account deficit, which some are calling ‘worrisome’. The gap is forecast to possibly double over the next year, which leaves Brazil open to the damaging effects of over-reliance on overseas borrowing.

Considered a broad measure of the health of a country’s trading, Brazil’s current account deficit has widened to US$18.9 billion over the last 12 months, and could grow to almost US$40 billion by the end of 2010. At present the figure represents 1.32 percent of gross domestic product: as Luciano Coutinho, president of the state development bank, said recently “A deficit too far above 1.5 percent of gross domestic product is not very healthy.”