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Davos: Brazil sees strong growth, low inflation

January 31st, 2010

Guido Mantega

Brazil’s top finance official painted a rosy picture of an economy that was growing strongly enough for the government to remove some stimulus measures but was not getting so overheated that inflationary pressures were becoming a problem.

Talking during the World Economic Forum in Davos, Finance Minister Guido Mantega also said that he was pleased that the real currency had fallen about 7 percent against the U.S. dollar this year, though he indicated he expected a further decline.

“The Brazilian economy is undergoing growth which is sustainable growth and is not going to generate inflation. I don’t see any signs of inflation,” he told a news conference.

That meant the government didn’t need to cut fuel taxes or take other such anti-inflationary moves, he told Reuters in an interview.

Mantega confirmed Brazilian media reports that the government had no plans to renew tax breaks that have helped automakers and home appliances manufacturers boost sales as there is no need for the additional stimulus.

“We are reducing the stimulus now because the economy is recovering fast and I think that they don’t need more governmental help,” he told Reuters.

Mantega said that Brazil’s internal demand was growing at a 7 percent annual rate and that the overall economy was forecast to grow at 5 to 5.5 percent this year.

A reduction in industrial taxes on household durable goods such as washing machines will end this weekend, and tax breaks on cars at the end of March, he said.

He said that he was “happy” to see the real floating lower but that it still wasn’t yet in currency equilibrium.

While declining to say if he wanted it to fall further, Mantega told the news conference that the size of the current account deficit would put pressure on the real.

“This deficit will help the exchange rate because there might be a (market) devaluation of the real,” which would make Brazilian exports more competitive, he said.

Data last week showed Brazil ran a current account deficit of $24.334 billion in 2009 compared with a $28.192 billion deficit in 2008, after surpluses over the previous five years.

Mantega said he expected it to hit about $40 billion in 2010 but said this was a temporary rise and the deficit would reduce as global recovery took hold.

“It’s not a reason for concern and we should not take any steps do deal with it.”

Earlier in the day, in a speech from President Luiz Inacio Lula da Silva delivered by Foreign Minister Celso Amorim, the Brazilian leader said the country had “a long way to go” but had made great strides in economic growth.

“We have strengthened our economy, improved people’s living standards, reinforced democracy, raised our self-esteem and made our voice heard louder across the world.”

http://www.busrep.co.za


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