Brazil Indus Grp Raises '08 Growth Projection, Cuts CPI View

Last update: 10/3/2008 2:47:06 PM
BRASILIA (Dow Jones)--Brazil's economy will likely grow more than initially expected this year amid rising consumption and decelerating inflation, the country's National Confederation of Industries, or CNI, said Friday in a third-quarter economic outlook report.
The group revised its forecast for 2008 economic growth upward to 5.3% from 4.7% seen previously. At the same time, the CNI lowered its forecast for IPCA consumer price inflation to 6.2% from 6.4%.

In its latest report, the organization cautioned that although the domestic outlook remained positive, the country's economy wasn't free from suffering the possible affects of recent international financial-sector turbulence.
"These conditions don't guarantee that the fallout from the world crisis won't effect Brazil," the CNI said, drawing special attention to the problem of increasingly scarce credit.
The group recommended that the country's central bank pay heed to credit costs and reevaluate the intensity of monetary policy, which it said "was not calibrated for a more adverse scenario such as the current one."
Regarding interest rates, the CNI projected the country's reference Selic interest rate would end the year at 14.50%, up from 14.25% seen in the last report. Since April, Brazil's central bank has raised the Selic rate by 2.5 percentage points to 13.75% annually in an effort to head off heated demand and accelerating inflation.
Brazil posted economic growth of 6.1% in the second quarter, up from 5.1% in the first quarter.
The CNI's increase in it growth forecast, meanwhile, comes alongside rising expectations for demand and investment. The group revised its forecast for 2008 household consumption upward to 6.0% from 5.5% previously. It also revised forecasts for fixed capital formation upward to 13.5% from 10.5%.
In addition, the CNI said the country's foreign trade balance would contribute more to domestic growth this year than initially expected. The group revised its projection for the country's year-end foreign trade surplus upward to $25 billion from $20 billion seen in the second quarter. The projection was based on an upward revision in forecast exports to $203 billion from $190 billion seen previously. Imports were forecast to rise to $183 billion from $170 billion seen previously. The group's projection for the country's current account deficit in 2008 rose to $29 billion from $20 billion.
The projections were based on a year-end foreign exchange rate of BRL1.80 against the U.S. dollar.