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Brazilian government launches a new round of stimuli to prop consumption

Thursday, August 30th 2012 - 04:20 UTC
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Tax relief for automakers extended for two months, said Mantega because car sales have surged in the past three months Tax relief for automakers extended for two months, said Mantega because car sales have surged in the past three months

Brazil's government unveiled a host of new measures on Wednesday aimed at increasing investment and consumption as it expanded efforts to boost a sluggish recovery in the world's sixth-largest economy.

The latest round of stimulus included cheaper credit for trucks and machinery and an extension of tax breaks for makers of home appliances and automobiles, Finance Minister Guido Mantega told reporters in Brasilia.

“The financing is meant to stimulate investment in the country,” Mantega said. “Investment takes a little longer to recover from a crisis, so we're giving more stimuli.”

Slipping investment and industrial output have contributed to flat economic growth in Brazil. Data next Friday is expected to show the economy struggled to gain momentum in the second quarter, despite government stimulus and interest rate cuts.

The measures displayed by Mantega, following more than a dozen such packages over the past year and a half, highlight the government's readiness to back up the central bank lower rates policy with fiscal stimulus.

The federal government will forgo 1.6 billion Reais (781 million dollars) in revenue this year and 3.9 billion Reais in 2013 because of the tax breaks it was extending on everything from washing machines to construction materials.

State development bank BNDES will also offer lower interest rates on credit lines for trucks, machinery and other capital goods.

While most of the tax breaks were offered through the end of the year, relief for automakers was extended for just two months, Mantega said, since surging car sales over the past three months showed the sector was on the rebound.

The Brazilian auto industry, (the world fourth largest) which makes up more than a fifth of the country's industrial output and 5% of its GDP, has become a focal point of President Rousseff's efforts to reignite the economy.

By slashing the so-called IPI tax on most locally made vehicles, the government jump-started car sales in May, leading to the best ever July for new automobile registrations.

Production levels have been slower to recover, as the industry focused on clearing inventories from the first half. Some automakers are wary about increasing industrial output only to find the market hung over after temporary tax breaks expire.

Tax relief has also come on the condition that carmakers avoid layoffs, making it harder for companies such as General Motors Co to shift production to more efficient plants.

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  • British_Kirchnerist

    Good ideas for growth; as we can see from Europe, austerity doesn't work

    Sep 04th, 2012 - 01:01 am 0
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