Brazil Lowers 2012 GDP Growth Forecast

Sept. 14, 2012
Brazil is reeling not only from the global crisis but also from its domestic problems and insufficient steps to boost production and competitiveness.

As Brazil’s Finance Minister Guido Mantega said Thursday that it would lower from 3% to 2% it 2012 GDP growth forecast,  the country also announced new stimulus measures to boost a sluggish economy expected to perform much better next year.

He added, however, that the economy was showing signs of an uptick and should grow above 4% in 2013, boosted by recent measures to stimulate consumption and industrial production, as well as by a sharp interest rate cut.

Mantega said the government was extending payroll tax breaks for 25 industry and service sectors, bringing to 40 the number of sectors which will benefit from the measure.

He said the tax breaks will cost the government $6.5 billion next year and $14.8 billion over four years. In exchange, the industries will pledge to pay a sales tax.

Mantega said the latest steps aimed to boost employment, cut costs and make Brazilian production more competitive.

In addition to the tax breaks, the government this week ordered a reduction of up to 28% in companies' electricity bills next year.

"With all these measures, we can assure that next year, the Brazilian economy will post more than 4% growth. We already see signs of a recovery," the finance minister said.

Last July, authorities already revised downward their GDP growth forecast from 4.5% to 3% due to the impact of the global economic slowdown.

Their latest projections are more in line with those of market analysts who are banking on 1.6% GDP growth this year while the International Monetary Fund is sticking to its forecast of 2.5%, lower than the global average of 3.5%.

Hardest hit by the crisis today is the industrial sector, which is expected to contract 1.7% this year.

"The most important today is to know the cruise speed of Brazilian growth and to reach a good rhythm. That must be the priority of our economic policy. We should not focus on this year's growth," said analyst Roberto Troster, a former economist of the Brazilian Banks Federation.

He added that the country was reeling from the global crisis but also from its domestic problems and insufficient steps to boost production and competitiveness.

The world's sixth largest economy expanded a paltry 0.6% in the first half of this year, the worst performance among the five-member BRICS bloc of emerging powers. China posted 7.6% growth during the same period, India 5.5%, Russia 4% and South Africa 3.2%.

Last year, the Brazilian economy rose 2.7%, sharply down from the sizzling 7.5% in 2010.

Copyright Agence France-Presse, 2012

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