Brazil Economy Slows, May Grow Below Potential, Caramaschi Says

Brazil’s economy has begun decelerating and should expand by 4 percent this year, less than its potential of 4.5 percent, said Vladimir Caramaschi, chief economist of Credit Agricole’s Brazilian unit.

“The economy may already be slightly below its potential,” the economist at Credit Agricole Brasil SA DTVM said in an interview today at Bloomberg’s Sao Paulo office. “Retail sales are clearly losing momentum. Credit is no longer growing with the same vigor.”

The central bank raised its benchmark interest rate for the third time this year by a quarter-point to 12 percent on April 20. To temper growth and inflation, it also raised banks’ reserve requirements in December, and the government promised to cut spending in this year’s budget by 50 billion reais ($31 billion).

Brazil will have to keep gross domestic product growth below its potential “for a while” to keep inflation within its target in 2012, Caramaschi said. Inflation over 12 months will remain above the target ceiling until the third quarter and will reach 6.3 percent by the end of the year, he said. The central bank’s target is 4.5 percent, plus or minus two percentage points.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

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