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Brazil official says country's recovery will surprise markets
January 23, 2014 / 10:06 PM / 4 years ago

Brazil official says country's recovery will surprise markets

BRASILIA, Jan 23 (Reuters) - Financial markets are underestimating the speed at which the Brazilian economy could recover in a year that should be less volatile than previous ones, a senior government official told Reuters on Thursday.

Marcio Holland, the finance ministry’s secretary of economic policy, said that an uptick in domestic consumption, record grains output and more infrastructure investment should help the economy grow more this year than last.

The U.S.-trained economist, the ministry’s main forecaster, said financial markets are focusing too much on 2013, which was plagued by market volatility amid talk that the Federal Reserve would withdraw U.S. economic stimulus.

“Some of these growth factors have been underestimated. However, once they materialize I believe there is a high chance that market forecasts will improve,” Holland said.

Most private economists disagree with Holland and forecast that the Brazilian economy will grow only 2 percent this year. The economy likely grew about 2.3 percent in 2013, marking its third straight year of sub-par growth.

The International Monetary Fund revised down its 2014 forecast for growth in Brazil to 2.3 percent from 2.5 percent. The government has not yet released it official economic growth estimate for 2014.

Earlier on Thursday, Brazil’s central bank acknowledged that economic activity will likely grow at about the same pace as last year.

The South American nation’s economy contracted 0.5 percent in the third quarter versus the previous one due to a steep fall in investment.

Holland said investment is likely to recover as a pick up in domestic consumption in the short-term due to a drop in loan delinquency and slowing food inflation fire up industrial output. A $113-billion program to upgrade the country’s aging infrastructure should also bolster capital expenditures.

Less volatility in financial markets and the local currency, the Brazilian real, should also help investors this year, Holland said. A clear blueprint of the withdraw of stimulus by the U.S. Federal Reserve should ease volatility ahead, he said.

For the last three years, President Dilma Rousseff has struggled to jump-start an economy that remains stuck with growth rates of about 2 percent per year-- a far cry from the annual growth rates above 4 percent the previous decade.

A slew of tax breaks and billions of dollars in subsidized loans have so far failed to bolster Latin America’s top economy.

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