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Economy
set for healthy growth. According to the revised Gross
Domestic Product (GDP) released by the National Statistical Institute (IBGE)
in early October, GDP expanded by 3.6% in the first half of this year
instead of the 3.8% reported in August. First and second quarter GDP
figures were also revised downward slightly from 3.8% and 3.9%
respectively to 3.6% and 3.4%.
Industry
rebounding strongly. While recovery has been evenly
distributed along sectoral lines, industry is experiencing the strongest
rebound. According to IBGE, seasonally adjusted industrial
production grew by 6.3% in August over the same month in 1999.
Capital goods production experienced the strongest boost with a 23.4%
expansion, while intermediate and consumer goods production grew by 5.7%
and 3.1% respectively. Key industrial sectors driving the strong
growth were mechanical (+24.4% year-over-year) and transport equipment
(+17.6% yoy) as well as rubber (+20.5% yoy). However, industrial
production growth is beginning to slow, owing to the higher comparison
base in 1999, when the recovery began to pick up in September. The
August expansion rate was below the numbers reported for June (+7.2%) and
July (+8.6%).
Declining
unemployment (down from 7.2% in July to 7.1% in August) together with
increased domestic credit availability and declining interest rates are
likely to drive a consumption rebound in the second half of this year.
According to the São Paulo Retail Federation (FCESP), seasonally
adjusted real retail sales in the São Paulo metropolitan area grew 7.4%
in July over the same month last year.
Durable consumer goods sales were up 11.3% for the same period,
while automobile sales and concessions expanded 28.4% and 34.1%
respectively.
Nevertheless, FCESP reports that consumer confidence dropped for
the first time since November 1999.
The 5.7% decline in August was attributed mainly to the recent
hikes in government-regulated prices and the recent corruption scandal
involving a close advisor to president Cardoso.
The
government believes that the economy is set to recover strongly in 2000
from last year’s slump, with growth anticipated to reach 4%, as lower
interest rates and strong industrial growth drive the economic rebound.
This month’s Consensus Forecast survey indicates that panellists
continue to factor the improved outlook for Brazil into their forecasts,
expecting economic activity to pick up strongly in the second half.
Furthermore, the growth projections for this year are gradually
impinging on the government forecast. Moreover, strong export growth and
the rebound in domestic economic activity are expected to boost the
economy further.
Central
Bank optimistic on inflation. Price pressures experienced
in July and August appear to have abated. According to the Fundação
Instituto de Pesquisas Econômicas’ (FIPE) monthly consumer priced
index, prices rose by 0.27% in September, a substantial drop from the 1.4%
and 1.5% hikes in July and August respectively. The September
increase brought the annual inflation rate to 7.4%. The major thrust
behind the September price increase was accounted for by rise in
transportation and food costs, which rose by 17.7% and 9.4% respectively.
Transportation prices continued to experience some upward pressure as a
result of the recent hikes in government-managed prices in response to
higher oil prices. Similarly, food prices remained under some
pressure brought about by lower supply due to harsh weather conditions
earlier this year.
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