Brazil Extends Tax Cuts on Cars to Revive Economic Growth

Brazil’s government extended for two months a tax cut on vehicles that has helped revive sales and spur growth in the world’s second-biggest emerging market.

Tax cuts on new car purchases that were scheduled to expire this month will be remain in place until the end of October, while ones on washing machines, stoves and other home appliances will now last until the end of the year, Finance Minister Guido Mantega told reporters in Brasilia today.

President Dilma Rousseff’s government reduced the so-called IPI tax for automobiles in May, helping to spur vehicle sales from a second-quarter low of 257,887 in April to 364,196 in July, according to figures from the national carmakers association known as Anfavea.

The cuts boosted furniture and appliance sales 15.8 percent in June from last year, and were the second-highest contributor to a 12.3 percent increase in the broad retail sales index, the national statistics agency said earlier this month. Sales of cars, motorcycles and auto parts jumped 19.8 percent in June from last year.

The central bank’s economic activity index rose 0.75 percent in June, the fastest pace in 15 months, adding to evidence that the 500 basis points in interest rate cuts over the past year and other efforts to boost growth are starting to take hold.

Brazil’s gross domestic product likely expanded 0.5 percent in the second quarter, after growing 0.2 percent in the January- March period, according to the median estimate of 50 analysts surveyed by Bloomberg ahead of an Aug. 31 report.

To contact the reporters on this story: David Biller in Boston at dbiller1@bloomberg.net; Arnaldo Galvao in Brasilia at agalvao1@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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