MercoPress. South Atlantic News Agency

Fears of overheating as Brazilian economy grows 5.4% in 2007

Brazil's economy expanded a greater-than-expected 6.2% in the fourth quarter, the fastest year-on-year quarterly expansion since June 2004, helping the overall 2007 expansion to reach 5.4%, boosted by consumer spending and business investment.

Low interest rates and wage growth that outstripped inflation made Brazil's economy expand for the 24th straight quarter, but also generating fears that policy makers may need to raise interest rates to rein in consumer prices. The Central Bank has targeted inflation in 2008 and 2009 at 4.5%. Over the last two years the Central Bank lowered the benchmark rate 18 straight times from 19.75% to 11.25%, the longest cycle since the Selic rate was adopted in 1999. But inflation has also spurred from 2.98% in March 2007 to 4.61% in February. Gross fixed-capital formation, a gauge of corporate investment in factories and machinery, posted growth of 16% in the last quarter, the fastest pace in almost 13 years. Finance Minister Guido Mantega speaking in Brasilia, said that the economy was growing "at a robust pace and free of inflation, something new in Brazil", and anticipated that further revisions in the coming months may show the expansion to be stronger, without elaborating. Meantime late Wednesday, and three months behind schedule, the Brazilian Congress approved the 1.42 trillion Real (approximately 848.3 billion US dollars) 2008 budget clearing the way for key investments in infrastructure. Opposition lawmakers and the ruling coalition reached an agreement on nearly 534 million Real of amendments and the budget was approved by 404-12 in the lower house. In the Senate, all 56 legislators present at the session voted in favor of the budget. Passage of the budget was delayed in December after the opposition defeated a bill to renew the so-called CPMF tax, a key levy on financial transactions that was expected to rake in 40 billion reais for government coffers. The delay had threatened to paralyze part of the government, including an ambitious plan to invest in airports, roads and other infrastructure projects, much needed if Brazil is to keep expanding the current level of exports.