Brazilian economy shows improvement, worries still linger

Special Report:Global Financial Crisis

BRASILIA, March 6 (Chinese media) -- The Brazilian economy has showed signs of improvement in the first two months of 2009, but analysts said worries about Latin America's biggest economy still linger as impacts of the global financial crisis are far from ebbing.

CHEERING PERFORMANCE IN

A series of economic stimulus measures adopted by the Brazilian government has been proven effective in softening the impact of the financial crisis, analysts said.

The sharply falling commodity prices were showing a slight increase in the international markets, a cheering signal for the country as commodities are the bulk of its exports, Finance Minister Guido Mantega said Thursday.

Automobile production totaled 186,100 units in January, up 92.7percent from December and car sales also soared in the first two months thanks to a cut in the Tax on Manufactured Products (IPI).

Moreover, the January employment figure, though still negative, showed the Brazilian companies had started hiring again, and by March there are likely more hiring than layoffs.

Brazil's foreign exchange reserves have exceeded 200 billion U.S. dollars, which ensures foreign investors that the country has sufficient funds to pay off external debts and reduce the risk of a moratorium.

"Most important, this crisis is not pushing up inflation -- Brazil's congenital weakness," said an article posted on The Economist website Thursday.

"That in turn has allowed the country's central bank to cut rates (making public debt cheaper to service)," the article said.

Brazil registered 5.9 percent inflation in 2008, higher than the 4.46 percent in 2007 but was still within the 4.5-6.5 percent target set by the central bank and lower than most market predictions.

That shows the government's inflation-control strategy was appropriate and its economic policy was "adequate to preserve the purchasing power of the population," the central bank said.

WORRIES STILL LINGER

Despite the country's encouraging economic performance, Mantega said "It does not mean the crisis was overcome and that problems are over."

Analysts said the drastic reduction in credit since the last few months of 2008 has dealt a heavy blow to the Brazilian economy and that influence is far-reaching.

The country is still undergoing a shortage of credit, especially for small and medium-sized enterprises, Mantega said.

"The cost of credit is still too high. We must bring it down so that the economy can roll again," he added.

Besides, whether demands for Brazilian goods in its two biggest markets, the United States and the European Union, will rebound remains uncertain.

Exports are expected to sink around 18 percent to 163 billion dollars in 2009, the first decline since 2000, officials said.

The Brazilian financial market has lowered its economic growth forecast for 2009 from 4 percent to 1.5 percent in three consecutive walks.

Credit rating agency Standard Poor's economists also forecast that the Brazilian economy would shrink to "a little over 1 percent" this year.

Noting that Brazil entered the crisis relatively late, Roberto Piscitelli, professor of public finance at the University of Brasilia, said this may mean the crisis will be less severe, but it could also mean the crisis may linger longer here.