Mantega says: Country grows 5% in 2011. Really?

Brazil's Ministry of Finance maintained its projection of 5% growth for the Brazilian economy in 2011, according to the document "Brazilian Economy in Perspective," released today. In the last version of the bulletin, released in October, the forecast was for 5,5% expansion for the Brazilian economy this year, but this figure had already been revised to 5% earlier this year when the results of the Growth Acceleration Program (PAC) were released. The Ministry of Finance also expects greater economic expansion in the coming years: 5.5% for 2012 and 6,5% per year in 2013 and 2014, which would average approximately 5,9% per year. “Recent trends demonstrate that the level of activity is at a sustainable level. Macroprudential measures, together with fiscal consolidation, should allow the economy to continue growing without a mismatch between supply and demand. For the period 2011-2014, it is estimated that the economy will return to growth at a level between 5% and 6,5%,” says the Finance Ministry in its bulletin. These estimates, coordinated by Minister Guido Mantega, were, however, prepared before the earthquake in Japan, which is causing increasing pessimism in the global economy each day.

According to the document, growth in 2011 will be driven by a 6,4% increase in domestic demand, a much more moderate rate than the 10,3% growth seen in 2010. The Finance Ministry expects a negative contribution of 1,4% to GDP from the external sector this year, significantly less than the 2,8% "external leakage" of GDP recorded in 2010. "The negative results of net external demand (exports minus imports), although reducing GDP growth, contribute to the expansion of the country's installed capacity, since 22,6% of the value of imports are capital goods, with an expansion of 38,0% between 2009 and 2010," states the Finance Ministry.

The government maintained its forecast that investments will close 2011 representing 20,4% of GDP and reach 24,1% of GDP in 2014. "With measures to incentivize long-term financing, the private sector should play a fundamental role in this segment. For the period 2010-2014, an increase of at least 1% of GDP per year in total investments is expected."

Inflation

The Ministry of Finance maintained its forecast for inflation, as measured by the Broad Consumer Price Index (IPCA), at 5% for the end of 2011, according to the document "Brazilian Economy in Perspective." The estimate for 2012 was also maintained, exactly at the center of the government's target of 4,5%.

Finance Minister Guido Mantega had already presented these estimates to President Dilma Rousseff on January 14th of this year. The inflation outlook was maintained despite the market projecting a 5,8% increase in the IPCA (Consumer Price Index) this year, according to the latest Focus bulletin prepared by the Central Bank.

In the document released today, the Ministry states that "inflation has risen proportionally less in Brazil than in most other countries, remaining within the limits of the targets set for 2010 and 2011".

The Finance Ministry also states that after a sharp increase in the last quarter of 2010 and the first two months of 2011, "the IPCA [Brazilian consumer price index] is heading towards deceleration in March and April, due to the reduction in prices of various foods and the end of the effect of bus fares and school tuition fees." According to the document, the pressures that remain in the service sector should react to the economic slowdown and the announced reduction in government spending.

The Ministry also highlights that the world is going through a period of monetary instability, driven by rising commodity prices and the crisis in North Africa and the Middle East. The document does not mention the earthquake that occurred last week in Japan.