Brazil may get a chance to shake off its image as the slowcoach of the fast-developing Bric economies this week, with second-quarter growth figures expected to reach 5.5 per cent, more than double the average of the past 15 years.
While Russia, India and China have long seen their economies grow faster than their peers in the developed world, Brazil has been more sluggish, despite the promise of a “spectacle of growth” by President Luiz Inácio Lula da Silva before his election in 2002. Some estimates ahead of the figures due to be released on Wednesday see growth running as high as 6.9 per cent, compared with 3.7 per cent last year.
But there is growing concern about a return of inflationary pressures, and many economists say the government appears to have abandoned plans to tackle spending for several years, suggesting the pace of growth will slow again in the medium term.
“Growth is really picking up,” said Marcelo Salomon, chief economist at Unibanco, a big private sector bank. “Things are looking very good for consumers and in terms of investment. It’s going to be a positive surprise.”
Unibanco expects growth of 6.1 per cent in the second quarter, towards the top of a range of economists surveyed by Bloomberg, a news agency, last week.
Agriculture, services and industry have all been growing quickly. Investment has been strong, particularly among exporting companies who have pushed ahead with investments begun last year.
Demand from consumers has also been robust, driven by a high rate of job creation and the rapid expansion and falling cost of consumer credit.
More than 1.2m jobs were created this year to the end of July, while the total amount of credit in the economy has doubled since 2003 to more than R$800bn (£207bn, $420bn, €305bn), or about 35 per cent of gross domestic product.
For some sectors of the economy this has compensated for the so-called “Brazilian disease”, the loss of competitiveness from the strengthening Real.
Mr Salomon said he expected to revise upwards his prediction of 4.5 per cent growth for the year. But he said growth in the next two or three years would fall back to about 4 per cent, partly as a result of slowing global demand for Brazil’s commodity-led exports in the aftermath of the US subprime lending crisis.
Other worries include a sharp spike in inflation in recent months. Wholesale price inflation in August was nearly 1 per cent, much higher than expected and a warning of rising consumer price inflation in coming months. Government figures on Monday showed consumer inflation at 3.99 per cent.
As a result, many economists expect the central bank to interrupt two years of interest rate cuts. Last week it slowed the recent pace of cuts from 0.5 per cent to 0.25 percentage points, taking the Selic rate to 11.25 per cent a year, down from 19.75 per cent in September 2005.
Nevertheless, current conditions are expected to produce enough growth to ensure improvement in key macroeconomic indicators, even in a context of rising public spending.
The government is expected easily to achieve primary budget surpluses (before interest payments) of about 3.7 per cent of GDP, enough to keep the ratio of debt to GDP on a downward trend.
Nevertheless, the continued rise of government spending is causing widespread concern among economists.
“There is no sign at all of a reduction of spending,” said Raul Velloso, a specialist in public finances in Brasília.
“On the contrary, the climate is one of increased spending. New items are appearing all the time.”
Last month the government announced plans to create 29,000 new public sector jobs in 2008 and to hire an additional 27,000 people to fill vacant posts.
“Government spending is contributing about 0.8 percentage points to annual growth,” said Sérgio Valle, an economist at MB Associados, a São Paulo consultancy.
He expects overall growth this year of about 5 per cent.