Brazil: A Helping Hand Fires Up Growth

Brazil's outlook for 2001 got a lift from an unexpected source--the U.S. Federal Reserve. The Fed's Jan. 3 rate cut, coupled with low Brazilian inflation, gave Brazil's central bank the opportunity it needed to cut its overnight lending rate by a half-point on Jan. 17, on top of December's cut of three-quarters of a point.

Those cuts, with more expected as the Fed eases further, suggest that Brazil's economic growth this year will at least match last year's 4% pace. Growth in the third quarter of 2000 was the fastest in more than three years, and fourth-quarter growth appears to have been strong as well, suggesting solid momentum heading into 2001. Help in achieving the government's 4.5% growth target for this year will also come from fiscal policy, which is turning stimulative after the restrictive period in the wake of the 1999 currency crisis.