Brazil: Country Economic Forecast: 01 Feb 2012

Oxford Economics
February 1, 2012
11 Pages - SKU: OFE6792202
Countries covered: Brazil

The Brazilian economy returned to growth in November 2011, with the central bank's economic activity indicator, a proxy for GDP, rising by 1.15% on the month on a seasonally adjusted basis. Domestic spending has rebounded in response to lower interest rates and government stimulus measures, including tax cuts. Despite evidence of a re-acceleration of economic growth, the central bank has retained its dovish stance, explicitly stating that it is targeting single-digit levels for interest rates. In the light of this strong signal, we now expect two more rate cuts of 50bp each at the COPOM meetings in March and April, bringing rates down to a level of 9.5% where we expect them to remain for the rest of the year. With President Rousseff also planning to push ahead with more fiscal stimulus measures, this presents inflationary risks for 2012. We continue to expect GDP growth of 3.1% in 2012, but the risks to this forecast now appear more balanced rather than skewed to the downside. Although Brazil remains exposed to the fallout from a more pronounced deterioration in global economic conditions than we currently envisage, on the upside there is the potential for growth to accelerate more rapidly than expected given the counter-cyclical policy measures in the pipeline.



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