MercoPress. South Atlantic News Agency

IMF chief warns Brazilian economy runs risk of ‘overheating’

Dominique Strauss-Kahn is visiting Brazil and Peru

The Brazilian economy can grow as much as 7% this year, raising the risk of overheating, said on Tuesday International Monetary Fund Managing Director Dominique Strauss- Kahn, who described Brazil as “a success story”.

“For this year, 7% would definitely be a reality” Strauss-Kahn told reporters in Sao Paulo, the first stop on a tour of Latin America that will also include stops in Brasilia and Peru.

Strauss-Kahn said Brazilian officials are aware of the risk of Latin America’s biggest economy “overheating.”

“The expectation this year is that growth will be very high,” he said at a televised debate earlier. “The question is how to manage this very high level of growth so as not to create too much inflation and too high a current account deficit.”

Consumer prices in Brazil will rise 5.67% in 2010, up from a week-earlier forecast of 5.54%, according the median forecast in a May 21 central bank survey of about 100 economists published May 24. Brazil’s economy will expand 6.46% in 2010, compared with a week earlier forecast of 6.3%, the survey shows.

The IMF, in a report this month on Latin America’s growth outlook, forecast Brazil’s gross domestic product will expand 5.5% this year. Paraguay and Peru are the only two regional economies the IMF expects to experience faster growth.

Strong capital inflows amid uncertainty in other parts of the global economy could cause Brazil’s Real to strengthen against other currencies, Strauss-Kahn said.