MercoPress. South Atlantic News Agency

Brazil's economy grew just 2.3% in 2005

Gross domestic product in Latin America's largest economy grew by 2.3 percent in 2005 amid high interest rates used to keep inflation at bay, the government said yesterday.

The growth rate was less than half of the 4.9 percent posted in 2004, according to Brazil's IBGE Census Bureau. GDP measures the value of all goods and services produced in a country.

??To grow faster, interest rates need to go down more,'' said Jason Vieira, chief economist at the GRC Visao consultancy in Sao Paulo.

The central bank had elevated its benchmark Selic interest rate by 3.75 percentage points in the 12 months through August 2005, reaching a high of 19.75 percent annually to keep inflation in check. The Selic rate started declining in September and now stands at 17.25 percent.

Last year's GDP growth was led by mineral extraction, which grew 10.9 percent. Industry increased 2.5 percent and services expanded 2 percent from 2004.

Agriculture rose just 0.8 percent, the poorest performance since 1997, when it fell by 0.8 percent, IBGE said. A drought in the south hurt grains and an outbreak of foot-and-mouth disease led to a drop in meat exports.

The mediocre growth rate may be bad news for Brazilian President Luiz Ignacio Lula da Silva, who likely will run for a second four-year term in October.

The run-up to the October election may itself boost growth, GRC Visao's Vieira said, as the government likely will increase spending. Also, temporary jobs will be created for political campaigns, leaving Brazilians with more money to spend.

Economists expect growth to pick up this year, leading to a full-year GDP expansion of between 3.5 percent and four percent.

Late last year, Finance Minister Antonio Palocci predicted Brazil's economy would grow by close to five percent in 2006.