MercoPress. South Atlantic News Agency

Mantega insists Brazil economy picks up in second half and reaches 2.5% annual growth

The minister said the government is ready to take more measures if necessary

Brazil's government has taken measures so that economic growth reaches at least 2.5% in 2012, said Finance Minister Guido Mantega following the announcement of new economic stimulus measures that are expected to accelerate the economy in the second half of the year.

“The GDP will grow more than 2.5% this year,” he said. “Credit is growing, interest rates are declining together with strong stimulus in the economy, and the foreign exchange rate is at a favourable level for industry and exports.”

The Finance minister had previously projected growth for around 3%. According to recent central bank market surveys, Brazil's economy is expected to grow by around 2.2% in 2012.

On Wednesday the government unveiled an 8.4 billion Brazilian Real government purchase program aimed at boosting demand for local industries.

Mantega said the government was ready to take more measures to boost growth if needed. “This isn't the first and it won't be the last measure that we take”.

In addition to the purchasing program, the government also unveiled a cut in the country's TJLP long-term interest rate to 5.5% from 6.0%. The TJLP is a subsidized rate used on financing for industry through the country's BNDES National Development Bank.

Mantega said that the rate cut would narrow the government's primary budget surplus slightly but also widen the country's nominal budget deficit by about 0.11-0.12 percentage points.

The minister projected that the nominal deficit would nonetheless narrow through the end of the year to the equivalent of around 1.2% of GDP from 2.5% at the end of last month.

The BNDES, which disbursed almost twice as much in loans last year than the World Bank, is the main source of credit for companies big and small in Brazil, making it a key player in economic affairs. The BNDES can charge below-market interest rates for its loans because it gets risk-free funding from the Brazilian Treasury.

The reduction in the TJLP is a sign that interest rates in general in Brazil will keep falling. Brazil's benchmark lending rate, the Selic, currently stands at an all-time low of 8.5% and is expected to fall further in coming months as inflation eases, probably to 7.75%..