Growing with Confidence in Brazil

In the current climate of economic uncertainty, few countries are expecting serious GDP growth this year. The exception is found in emerging markets and within them, Brazil is setting a 6% growth limit.

One of the last in and first out of the global recession, Brazil quickly bounced back into positive growth. With booming domestic demand and unparalleled levels of foreign investment, Brazil is widely expected to achieve at least 6% GDP growth this year.

The signs are already there - Q4 2009 growth was 2% and analysts are almost unanimous that the figure for Q1 this year will be higher. Brazil is also in the midst of high consumer confidence and spending. Based on these facts, Morgan Stanley recently classed Brazil's economy as being "red-hot".

Conscious that an economy's growth should be contained, the Brazilian government is curtailing expansion at 6% this year. While most countries in the world at the moment would give their eye teeth for a third of this figure, Brazil is keen to rein in its growth. To do this, the government is adopting a number of measures designed to maintain Brazil on a steady upward growth curve.

Talking about these measures to the Financial Times, Guido Mantega, the Minister of Finance in Brazil, said he had no worries about Brazil's economy overheating and was confident that Brazil would achieve between 5.5% and 6% growth this year. To keep growth capped at 6%, the government has removed some of the stimuli introduced to help overcome the global downturn.

Other measures include the recent increase in interest rates to 9.5%, a move taken to check inflation. Although inflation in Brazil is only slightly over 5%, this is higher than the Central Bank target of 4.5% for this year and the government is keen to fulfil inflation targets. For this to happen, Mr Mantega did not rule out further interest rate rises during the course of this year.

He also said that the Brazilian government will reduce public spending if there is any sign of the economy overheating. This reduction would not come from investment so social programmes such as the hugely successful low-cost housing scheme, Minha Casa Minha Vida, and the zero-hungry programme will remain untouched. Instead, Brazil will cut spending by all cabinet ministers.

Mr Mantega mentioned that Brazil is also considering facilitating imports for certain products in a bid to slow down demand growth. At the moment Brazil imposes high import tariffs on products such as steel and textiles. A reduction in these tariffs would allow Brazil to import more to meet demand.

Brazil's recent economic record is impressive and the country has shown the rest of the world how to minimise the effects of recession. According to Brazil's Finance Minister, Brazil is more than confident that it will attain 6% growth this year without any danger of overheating. And with many nations currently in a flux of drastic public spending cuts, high unemployment and financial bail-outs, Brazil is undoubtedly in an enviable position.

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