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Data de postagem: 16/08/2010 02:10:30

Brazil is in danger of overheating

July 14th 2010

After a mild contraction as a consequence of the global crisis in 2009, Brazil's economy is rebounding strongly, to the extent that there is currently a risk of overheating. In light of consistently strong recent economic indicators, we have revised our forecast for GDP growth in 2010 up to 7.8%, from 6.3% previously. Growth is being driven by a combination of an increase in the labour force, higher wages and an expansion of credit. Consumer spending is rising at a rapid pace. Brazil's terms of trade have been supported by the rally in commodity prices, and the country is benefiting from strong demand for iron ore and other raw materials from China. We expect growth in Brazil to slow to a more sustainable pace of 4.5% in 2011.

Following interest rate cuts totalling 500 basis points in early 2009, a cycle of monetary policy tightening is now under way. In February the Banco Central do Brazil (the central bank) raised banks' reserve requirements, and in late April it raised its benchmark interest rate, the Selic, by 75 basis points to 9.5%. A series of further increases is expected later this year. The government adopted some measures to support the economy during the recession and the primary fiscal surplus has shrunk, but not to the extent that this will compromise fiscal solvency. The presidential election in October 2010 is unlikely to cause financial instability, as both leading candidates are committed to a continuation of orthodox macroeconomic policy management.

source: http://gfs.eiu.com/Article.aspx?articleType=rf&articleid=197272804&secId=2