Brazil economists reduce 2012 growth forecast for third week

Aug. 20 (Bloomberg) -- Analysts covering Brazil’s economy cut their 2012 growth forecast for the third straight week, even after recent signs that the economy may be picking up speed.

Gross domestic product will expand 1.75 percent, according to the median estimate in a central bank survey of about 100 analysts published today, down from last week’s estimate of 1.81 percent. The economists have reduced their growth estimates in 13 out of 15 weeks since May 7, and have held their estimates steady in the other two.

Since last August, President Dilma Rousseff’s administration has cut the benchmark Selic rate to a record low 8 percent, pressured commercial banks to increase lending and cut taxes on consumer goods to fuel growth in the world’s second-largest emerging market. Recent economic indicators signal that the measures may be spurring consumer demand, while other factors may be holding back expansion, said Neil Shearing, Chief Emerging Markets Economist at Capital Economics.

“The demand side has been strong, but it seems that the supply side of the economy has really been struggling, held back by a lack of competitiveness and, in some cases, of capacity,” Shearing said in a telephone interview from London.

Fastest Pace

Retail sales rose 1.5 percent in June, the most since January, on higher furniture and appliance sales. Brazil’s seasonally adjusted economic activity index, a proxy for gross domestic product, rose 0.75 percent in June, the fastest pace since March 2011. Last week, Standard Chartered Plc raised its growth forecast for the second quarter to 0.4 percent from 0.2 percent. Other economists said the consumption increases were temporary.

June’s retail sale increase “was affected by variables that we are not necessarily going to see again, such as tax reductions on vehicles,” Jose Francisco De Lima Goncalves, chief economist at Banco Fator, said in a telephone interview from Sao Paulo.

Inflation as measured by the IPCA index quickened in July to 5.2 percent, as adverse weather in Brazil and the U.S. drove up food prices. Price increases will slow to the central bank’s inflation target of 4.5 percent by year-end, central bank President Alexandre Tombini said on Aug. 17.

Economists in the survey boosted their 2012 inflation forecast for the sixth straight week to 5.15 percent from 5.11 percent.

The central bank forecasts growth of 2.5 percent this year, down from 2.7 percent last year and 7.5 percent in 2010. The economy will be growing at a 4 percent annual pace by year-end and will enter 2013 at “cruising speed,” Finance Minister Guido Mantega told reporters on Aug 16.

Bloomberg News

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