Worst of recession over for Brazil: Government economists

By EFE,

Rio de Janeiro : Brazil will witness overall economic growth this year despite a 3.6 percent contraction in the fourth quarter of 2008, the state-funded Institute for Applied Economic Research (IPEA) has said, indicating that the worst of recession was over for Latin America’s biggest economy.


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“Even with the global crisis, the Brazilian economy will grow this year, but it will grow by little, between 1.5 percent and 2.5 percent, after having expanded 5.1 percent last year,” IPEA said in its latest report.

President Luiz Inacio Lula da Silva’s government recently lowered its growth forecast for 2009 from 3 percent to 2.5 percent, but economists at Brazil’s private banks say the economy will expand by barely 0.58 percent this year.

IPEA predicted the international economy will gradually improve in the coming months as the stimulus programmes adopted by various governments start to have an effect.

“This result will be the reflection of a recovery path over the course of the year, in which GDP will grow at more pronounced rates beginning in the second half,” the institute said.

By the fourth quarter, according to IPEA, Brazil’s gross domestic product will be growing at 3.1 percent.

IPEA economist Roberto Messenberg told a press conference Wednesday that the central bank is keeping Brazil’s interest rates too high and faulted Lula’s administration for aiming to run a primary budget surplus equivalent to 4.3 percent of gross domestic product.

“I am critical of this economic policy. There is no justification for having a budget surplus, which is a policy of contraction, and such an orthodox monetary policy in this climate,” Messenberg said.

“Without investment, our economy will be left defenseless against the drop in employment and slow growth,” the IPEA researcher said.

The IPEA report also stressed that with expected annual inflation of less than 5 percent, Brazil can afford to reduce interest rates that are among the highest in the world.

“So far, everything indicates there will not be a technical recession, because we already have signs of recovery in the first quarter” of this year, Finance Minister Guido Mantega said in early March.

Within weeks of last autumn’s meltdown in world financial markets, Lula’s administration provided extra liquidity to Brazilian banks and construction companies, cut sales taxes and funnelled money to lenders.

The president also pledged to maintain and expand an ambitious infrastructure programme launched well before the global downturn.

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