According to today's announcement by the National Statistics Office, the Brazilian economy achieved quarter-on-quarter growth of 2.7%, in seasonally adjusted terms, in the first quarter of 2010, meaning that economic momentum picked up further speed. Once again, private consumption and investments provided considerable growth impetus, with the latter up by 7.4% in a quarter-on-quarter comparison.
Brazil: Marked recovery – economic policy takes its foot off the gas
This robust economic development looks set to continue for the time being, an assessment that is corroborated by the first economic indicators for the second quarter. Although industrial production in April was down by 0.7% on March in seasonally adjusted terms, this decline has to be viewed in the context of the very strong 3.4% increase witnessed in March, and its significance should therefore not be overestimated. Current production is still up by a good 2% on the average for Q1, despite the recent decline. Capacity utilization in the industrial sector now stands at 82.6%, putting it back above the long-term average of 81% (January 2003 to March 2010) which, in turn, suggests that investment activity will remain brisk over the next few quarters.
In order to prevent the Brazilian economy from overheating, May saw the government announce spending cuts for the second time within only a few months. Prior to this announcement, it had already withdrawn part of its fiscal stimulus package, which featured temporary subsidies and tax incentives, so as not to add any more fuel to the domestic demand fire. Monetary policy has also reacted to the strong economic growth and rising inflationary pressure: the Brazilian central bank raised its key interest rate, which had been standing at 8.75% since July 2009, by 75 basis points at the end of April to the current level of 9.5%. We expect the central bank to hike the key rate by a further 75 basis points, bringing it up to 10.25%, as early on as at tomorrow's regular meeting. At the end of 2010 we see the key rate between 11.5% and 12%.
After a buoyant first half of the year, we predict that the economic momentum will start to taper off slightly as the year progresses, not least given the increasingly dampening effect that economic policy will have. Thanks to the strong start to the year, however, we have lifted our growth forecast for 2010 as a whole from 5.5% to 6.5%.
Gregor Eder
tel.: 49 / 69 / 2 63 – 5 33 58
e-mail: [email protected]