Brazilian economy projected to expand 3.4 pct in 2006

6 February 2006

Sao Paulo, Brazil, 01 Feb – The Brazilian economy is expected to grow 3.46 percent in 2006, according to forecasts in a report by Febraban, the entity which represents the banking sector in Brazil.

The report by the Brazilian Banking Federation (Febraban) included projections from 51 banking institutions about 30 economic variables in 2006.

“The scenario for this year appears to be optimistic. The stimuli for this growth are provided by industry which is expected to expand by 3.99 percent,” the report said.

Analysts expect that the Brazilian economy expanded by 2.4 percent last year.

The official figures for growth in 2005 have yet to be published.

In 2004, the Brazilian economy recorded growth of 4.9 percent, one of the best results of the last few years.

Other factors driving the Brazilian economy in 2006 are increased exports and reduced base interest rates.

According to Febraban, interest rates are projected to decrease, with a base rate at 15.23 percent at the end of 2006 and 13.87 percent in December 2007.

The report also showed that direct foreign investment should total US$14.9 billion this year, representing an increase on 2005.

Febraban’s projections also include an increase in the country’s trade surplus in 2006 to US$36.13 billion, with exports of US$122.16 billion and imports of US$86.44 billion.

In 2005, Brazil’s trade surplus increased by 33 percent, against 2004, to US$44.8 billion, a record figure.

“2006 is an election year. A comparison with 2002 shows that at that time the foreign scenario was troubled due to Argentina’s debt default, the attack on the Twin Towers and increased risk aversion due to numerous scandals,” the report said.

“However, the expectation for 2006 is that the economy and world trade and commerce will grow, US interest rates will stabilize at the 4 percent mark, prices will remain stable and there will be a lot of liquidity,” it said.

The report said that the Brazilian elections, due to take place in October, “will be more focused on technical factors that on emotional ones.”

“It will be an opportunity to discuss paths to the future, analyze alternatives and choose a growth route that is compatible with Brazil’s potential,” the report said.

The Febraban forecast fro Gross Domestic Product (GDP) growth in 2007 is “slightly higher than for 2006.”

“It is progress, but it’s small. Brazil has the conditions for greater growth rates. Growth at a higher arte implies an economic strategy based on solid premises,” the report said.

A survey published by Brazil’s National Industry Confederation (CNI) said last week there would be “slow and gradual,” growth in 2006.

One of the main obstacles to economic growth in Brazil, according to the survey, are the country’s interest rates.

Current base interest rates in Brazil stand at 17.25 percent – one of the highest rates in the world.

Around 40 percent of small and medium-sized companies said that high interest rates were the main obstacle to industry growth according to the CNI survey.

The CNI survey showed, however, that Brazilian businesspeople planned to maintain current employment levels in industry, without lay offs or new hires in 2006. (macauhub)