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Economy in Brief

Expected Increase in Brazilian Industrial Production May Dampen Protectionist Fever
by Louise Curley  April 3, 2012

The index of industrial production in Brazil rose 1.3% in February after having declined 1.5% in January. Although the index was still 3.3% below a year ago, the rise was greater than expected and a welcome reversal of trend that may help to dampen the increasing pressure for protectionist measures.

As growth in Brazil slowed during last year from 7.6% in 2010 to 2.7%, in 2011, the government became increasingly concerned about its rising currency, the real. Between mid December and the end of February the real appreciated just over 10%, curtailing exports and increasing imports. The finance minister, Guido Mantega has been quoted as saying  "Brazil wont play the 'idiot's role' and let its currency appreciate while rich nations artificially devalue theirs to gain market share for their products."

The government introduced a variety of measures to curbthe continued rise of the real. There have been five cuts in the official benchmark interest rate from 12.50% last August to 9.75% currently, tax cuts on consumer goods, the imposition of selected import duties and added financial taxes to discourage capital inflows. As a result of these measures, the real is currently some 6% below its recent peak. The attached chart shows the recent rise and fall in the real.

President Dilma Rousseff has promised to announce further measures today to stimulate investment, strengthen production and stimulate the creation of jobs. The hope is that the added stimulus will raise the growth rate to 4.5% this year from the Central Bank's current estimate of 3.5%.

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