Brazil Analysts See Faster Inflation, Lower Growth in 2013

Analysts covering Brazil forecast slower growth and faster inflation this year and next, as the world’s second-biggest emerging market continues to respond unevenly to government stimulus efforts.

Brazil’s gross domestic product will expand 1 percent this year and 3.4 percent in 2013, according to the median estimate in a central bank survey of about 100 analysts published today. Analysts had forecast 1.03 percent and 3.5 percent respectively the previous week. Inflation will reach 5.60 percent this year and 5.42 percent in 2013, up from the previous estimates of 5.58 percent and 5.40 percent, the survey showed.

President Dilma Rousseff’s administration has continued to pump stimulus into Brazil’s $2.5 trillion economy, which economists forecast will grow the slowest among major emerging markets this year. This month government officials announced measures aimed at luring billions of reais in port investments, as well as tax cuts for the construction industry. In the last 16 months, policy makers have also increased public spending, reduced the benchmark interest rate to a record low and lowered taxes on automobiles and appliances.

“Expansionist monetary and fiscal policies are fueling inflation because they are creating consumption and demand,” Newton Rosa, chief economist at SulAmerica Investimentos, said in a telephone interview from Sao Paulo. “We are still not seeing higher investments. Slower economic growth this year reduces carry-over to next year.”

Falling Investment

Brazil’s GDP grew 0.6 percent in the third quarter, half the pace forecast by economists, as investments fell for the fifth straight period. Sales of vehicles in November slipped 8.7 percent from October.

Recent economic indicators suggest a turnaround may be under way. Brazil’s economic activity index, a proxy for gross domestic product, rebounded more than analysts expected in October. Retail sales in October increased for the fifth straight month and at the fastest pace since July on higher sales of computers, furniture and appliances.

Uneven growth has failed to tame inflation, which has remained above the central bank’s 4.5 percent target for over two years. Annual inflation through November accelerated to 5.53 percent from 5.45 percent a month earlier on higher service costs. Rousseff said in France last week that inflation is under control.

The world’s sixth-largest economy grew 2.7 percent last year, down from 7.5 percent in 2010. Brazil is creating conditions necessary to grow more than 4 percent next year, Finance Minister Guido Mantega said in Paris last week, adding that fourth quarter growth will be stronger than in the prior period.

To contact the reporter on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net

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

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