Brasília - The Institute for Applied Economic Research (IPEA) estimates that economic growth this year will surpass the previous forecast of 3.5%. The President of the IPEA, Glauco Arbix, informed that "all the preliminary data point to intense activity in various sectors, which suggests that the economy should grow more than what was forecast."

Arbix was unwilling to risk an exact percentage, "because the information is still being correlated," but he guaranteed that there is no reason for growth not to exceed 3.5%. "We are currently observing activity in the Brazilian economy that makes us quite optimistic."

The President of the IPEA cited external factors, such as the gradualness of the increase in American interest rates, which are currently 1.5% (annualized), enabling Brazil to protect itself against possible capital flights to the United States. He also mentioned the economic upswing in Europe and Japan. As for the recent hikes in oil prices, he commented that only a "hypercrisis" in the sector will cause a shock to the economy.

Within Brazil, Arbix said, the outlook is one of optimism on the part of both the government and entrepreneurs, which is indicative of growth.

Signs of growth are also visible in the figures published in the General Register of Employment and Unemployment (Caged), released by the Ministry of Labor. There were 202 thousand new formal hirings in July, 5.3% more than in July, 2003.

Arbix alludes to the fact that Brazil has achieved this growth despite having the second highest benchmark interest rate (Selic) in the world. "Many analysts wrote that the country would never succeed in growing with nominal annualized interest rates of 16%. Reality is disproving these prognoses. We are managing to grow." He attributes this phenomenon to the fact that many sectors of the economy do not use the Selic in obtaining credit. "This is the case with agriculture, which gets lower rates. Other groups, made up of large corporations, obtain funds abroad, at low interest rates, while still others receive financing from the National Economic and Social Development Bank (BNDES), which also offers more favorable conditions than the Selic. In a rough estimate, we can say that we have between 40% and 50% of the economy operating with interest rates different from the Selic."

Arbix cautioned, however, that for growth to be sustained, the interest rate will have to be reduced.

Arbix is optimistic about 2005, considering that this year Brazil experienced a moment of recovery, with firms putting idle production capacity back to use. "Now the tendency is for firms to begin to invest more. Following the reactivation of idle capacity, in the next phase the number of people hired will grow even more," he wagered.

He claimed that "in 2005 investment will be the key question," and issues related to infrastructure, such as roads, ports, and energy, will demand urgent solution. Arbix emphasized the importance of the Public-Private Partnerships project to elevate investments in these strategic areas.

Agência Brasil
Reporter: Edla Lula
Translator: David Silberstein
08/20/2004