MercoPress. South Atlantic News Agency

High rates and weak US dollar plunged Brazil's growth

The poor showing of Brazilian agriculture, higher interest rates and a cheaper US dollar had a direct impact in the performance of the Brazilian economy in 2005, which expanded (2.3%) at less than half the 2004 rate, 4.9%.

Rebeca Calis from the Brazilian Geography and Statistics Institute, IBGE, said agriculture suffered from a drop in crops' volumes and towards the end of 2005 from the outbreak of foot and mouth disease in the southern states.

Domestic industry experienced a greater competition from imports, particularly in metals, steel and textiles. Investment also was limited by the extremely high interest rates. The basic rate SELIC in 2005 averaged 19.1% compared to 16.3% in 2004. Inflation last year was in the range of 5.5% and the appreciation of the Brazilian currency against the US dollar was above 9.5%.

IBGE says growth in 2005 was speared by domestic demand contrary to what happened in 2004 when industrial and agriculture investments were the main driving forces. Families' consumption in 2005 increased 3.1% favoured by a 5.3% growth in workers income.

However gross fixed investments expanded 1.6%, making it one of the most limiting factors for overall GDP growth last year.

As to the external sector, goods and services exports in 2005 expanded 11.6% and imports 9.5%, reflecting a deceleration compared to the 18% and 14.3% of 2004. According to IBGE GDP expansion in 2005 was made up of a 2.1% increase in commodities prices and a 3.9% jump in production taxes. Actually per capita GDP growth was 0.8% last year.

In 2004 domestic demand contributed 3.8 points to the 4.9% expansion and external demand, 1.1 points. In 2005 domestic demand represented 1.4% and overseas trade (exports minus imports) 0.9%.

Regarding 2006 prospects according to the Brazilian Central Bank's targets and standing poll of estimates, GDP growth is forecasted in 3.5%, inflation in the range of 5% and the basic Selic rate could drop below 15% by the end of the year.