MercoPress. South Atlantic News Agency

Brazilian economy set to grow 3%, but with risks of overheating, says IMF

A relaxed monetary policy from the central bank is seen as a possible risk

The Brazilian economy is set to grow 3% in 2012 after the modest 2.7% of last year, but following the relaxation of monetary policy it runs the risk of ‘overheating’, according to the IMF World Economic Outlook, WEO.

As other Latin American and Caribbean commodities’ exporters, Brazil registered a moderation in the strong domestic demand as “tighter macroeconomic policies became having effect and the external environment suffered a weakening”.

However following this phase, Brazil relaxed monetary policy which in the combination of these forces means the risks of overheating have resurged, said the WEO report.

“Extended credit and the increase in imports suggest that the risks of overheating are not completely under control and could resurge if the influx of foreign capital returns to its previous level”, sayd the IMF WEO, released on Tuesday.

The report anticipates that consumer prices inflation this year will reach 5.2% falling to 5% next year, compared to the 6.6% of 2011. Economic growth is estimated at 3% this year and 4.1% in 2013.

Finally the WEO report warns that the challenge for emerging countries is to calibre adequately the policies to manage the negative effects spilling over from the Euro crisis. At the same time these economies must face pressures from strong domestic activity, expansion of credit, influx of volatile capital, still elevated commodity prices and renewed risks from inflation and the fiscal front.