MercoPress. South Atlantic News Agency

Brazilian economy slowing but Lula da Silva optimistic

Brazilian President Luiz Inacio Lula da Silva forecasted Friday the economy would expand 4% by the end of 2006 in spite of poor quarterly results.

The Brazilian Geography and Statistics Institute, IBGE, reported Thursday that Brazil's GDP grew 0.5% from the first quarter, slowing from a 1.3% expansion in the first three months of the year in part because of falling exports. Brazil's export sector slumped 5.1% in the second quarter from the first three months of the year, the first decline after 12 consecutive quarters of expansion.

"I had the opportunity to see the IBGE information and it is within what we had forecasted, that is to say we have a growth target of 4%" Lula told reporters after participating in a meeting with executives of Italian automaker Fiat.

According to President Lula, who is seeking a second four-year term in the October first elections, there are "many people scared" with the tepid GDP growth in the second quarter, but "they forget that two quarters are left for the economy to get back on course".

"We're convinced that we'll reach the four-percent goal that we have set as our aim. We're going to achieve the goal of getting Brazil into a lasting cycle of growth, which is what indeed is necessary" insisted the president.

However financial analysts are not so confident and believe that given second quarter results it will be difficult, but not impossible, to meet the 4% government target.

The Brazilian economy last year also experienced a modest growth, 2.3% but the Lula da Silva administration preferred to react unconcerned about recent economic data and expressed optimism looking into the future.

"I feel very good about growth prospects for Brazil's economy; I feel good about the prospects for growth in industrial output; I feel good about growth in the auto industry" the president said.

But the fact is that the strong Brazilian currency, Real, caused the first decline in export volumes in almost three years, helping slow down Latin America's largest economy, according to official data on Thursday.

Exporters have complained that the strong real reduces their proceeds from external sales and the competitiveness of their products. But analysts say the currency effect on the trade surplus so far is being masked by high prices for some key products, which are increasing the value of exports.

Nevertheless President Lula da Silva's optimism seems to have caught with the Brazilian electorate because with only a month left for ballot day, public opinion surveys show him with over 50% of vote intention and 25 points ahead of his runner up, Geraldo Alckmin from the Social Democrat party. Socialist candidate Senator Heloisa Helena has stabilized in 12%.

The same Vox Populi survey a month ago showed Lula da Silva with 45% of vote intention and former Sao Paulo governor Alckmin with 24%.