Brazil Central Bank cuts GDP Growth Forecast (Article)

December Article

http://www.telegraph.co.uk/finance/globalbusiness/9759571/Brazil-Central-Bank-cuts-GDP-growth-forecast.html

Brazil's Central Bank on Thursday cut its GDP growth forecast for 2012 from 1.6 percent to one percent, confirming a marked slowdown in Latin America's biggest economy.

 

It was the third downward revision by the Bank this year: from 3.5 percent early this year to 2.5 percent in June, then down to 1.6 percent in September and to one percent this month.

 

Markets analysts are also forecasting one percent GDP growth, according to the latest data released Monday.

 

But some analysts said even this latest, lowered figure might be too high.

 

"One percent is a little optimistic. I think the economy will grow 0.9 percent this year," said economist Silvia Matos of the Getulio Vargas Foundation.

She said she expects a contraction of investments, which should adversely affect growth forecasts.

 

"To boost investments, you need labor, and labor in Brazil is very expensive," Matos noted.

 

"The government's stimulus measures are not enough" and now "the problem is more structural," she added.

 

Robert Wood, a Brazil analyst for the Economist Intelligence Unit said "Brazil's less robust economic outlook reflects a weakening of factors that contributed" to the country's six-year growth spurt, which averaged 4.5 percent between 2004 and 2010.

 

The "favourable winds" that had spurred Brazil's growth included "the Chinese-fuelled commodity boom, surplus labour and an expanding labour force and structural changes in credit markets which doubled credit in GDP terms to 50 percent in this period," Wood explained.

 

"GDP growth will now have to come more from productivity gains, which requires structural reforms," he added.

 

A study commissioned by the National Confederation of Industry (CNI) published last week found that Brazil ranks near the bottom among 14 emerging powers in terms of competitiveness, due to high capital and labor costs as well as inadequate infrastructure.

 

The Brazilian government has announced huge investments in airport, highway and rail projects, in partnership with the private sector, to upgrade the country's creaking infrastructure and jumpstart the sluggish economy.

 

It has also eased social charges in various sectors and reduced taxes on cars and home appliances.

 

The International Monetary Fund in October projected 1.5 percent GDP growth for Brazil, the world's sixth largest economy, this year.

 

It expects Brazil to fare worse than its partners in the BRICS bloc of emerging powers, predicting 7.8 percent growth for China, 4.9 percent for India, 3.7 percent for Russia and 2.6 percent for South Africa.

 

Brazil's economy grew just 0.6 percent in the third quarter of 2012 over the previous three months, signaling a weaker than anticipated recovery, according to official statistics released late last month.

 

The economy lost steam last year due to the global slowdown, with GDP growth at 2.7 percent, down from a sizzling 7.5 percent in 2010.

 

Thursday, the bank also revised its inflation estimate for 2012 to 5.7 percent, up from 5.2 percent.