Brazilian Government Confirms Economy Slowdown

Brazil´s Institute of Applied Economic Research (IEPA) downgraded the country´s economic growth forecasts both in 2005 and 2006. The quarterly report forecasts Brazil will expand 2,3 percent instead of 3,5 percent as previously announced, and 3,4 percent in 2006, down from 4 percent.

The latest forecast has been interpreted as a quick reply to a similar bearish outlook earlier in the week from Brazil´s main business organization, CNI, National Industry Confederation.

IPEA attributed the slowdown to companies´ sharply cutting back on planned purchases of plant and equipment in response to Brazil´s "political crisis."

“We have had since the second half of June, a scenario of enormous uncertainty, with several scandals, rumors of the president´s removal as a consequence of the Congressional situation and none of this favors investment decisions,” IEPA´s director Paulo Levy noted.

The CNI report released Tuesday slashed this year´s IPEA original investment growth estimate from 5.3 to 0.9 percent.

“The frustrating slump in the third quarter and the rising value of the Brazilian real –hurting exports- reinforce the need for a lowering interest rates course throughout 2006,” emphasized Mr. Levy in the IPEA.

The Brazilian Central Bank, backed by Finance Minister Antonio Palocci, insists high rates are necessary to ward off inflation, a historic scourge that Brazil only managed to tame within the last decade.