--Itau Unibanco predicts 1.9% growth for 2012 -Goldfajn
--Brazil's benchmark Selic will likely end 2012 at 7% -Goldfajn
--Brazil's government needs to raise its own investments -Goldfajn
By Luciana Magalhaes
SAO PAULO--The slow rebound of Brazil's economy doesn't reflect
structural problems, but rather the effects of the global financial
crises and a cool-down after a rapid recovery in 2009, said a top
economist at Brazil's Itau Unibanco Holding S/A (ITUB, ITUB4.BR), the
country's largest private-sector bank.
Brazil could grow close to 2% in 2012 and more than double this rate
in 2013, said Ilan Goldfajn, chief economist at Itau Unibanco and
former central bank director, told Dow Jones Newswires.
Still, over the longer term, the country will have to tackle some of
its underlying problems to be able to raise investments and increase
productivity, and thus maintain a steady growth rate, Mr. Goldfajn
said. Brazil's investment rate is around 19% of gross domestic product
and Mr. Goldfajn expects it to reach 22% of GDP in the next four
years.
The economist predicts Brazil's GDP will grow 1.9% in 2012 and 4.5% in
2013; both projections are above market consensus. Financial market
analysts and economists have reduced their forecast for the country's
economic expansion this year, to 1.73%, according to the latest weekly
survey by the central bank. GDP growth for 2013 is seen at 4%.
After a dismal rate of growth in the first quarter of this year, when
Brazil's GDP expanded only 0.2% over the previous quarter, economic
activity would need to show a consistent increase from the second
quarter. Second-quarter GDP will be released on Friday and Itau
foresees a 0.5% expansion from the first three months of the year. Any
negative surprise will likely lead the bank to cut its projections for
the year.
Mr. Goldfajn expects more aggressive action by Brazil's central bank
than most in the market. He sees Brazil cutting the benchmark Selic
interest rate to 7.5% later on Wednesday and then to 7% by the end of
the year. The consensus estimate is 7.25% by December.
"I believe we can keep a lower interest rate in Brazil because the
country's risk has diminished over the time," Mr. Goldfajn said. In
this respect, change hasn't happened from last year: Interest rates in
Brazil have been falling over time, Mr. Goldfajn said.
Brazil was stuck for many years with the belief that high interest
rates were needeed to avoid any rise in inflation. But so far this
year, this has been proven wrong. Brazil's inflation is seen at 5.19%
at the end of the year, within the government's target range.
Brazil's base rate is at a historic low level of 8% and is widely
expected to fall another half-point later Wednesday. The central bank
began cutting rates in August 2011, as growth in Brazil slowed
sharply. Analysts have recently reduced their outlook for Selic at the
end of 2013, to 8.25%.
If growth picks up, the economist said, the Brazilian central bank
will likely consider raising rates next. "But we are talking about
raising it maybe from 7% to something like 8.5%, possibly at the end
of 2013."
Mr. Goldfajn believes one of the Brazilian government challenges today
is to better use its own capital resources, increasing money devoted
to investments. "Today, federal investment is 0.5% of GDP," he said.
"Ideally, it should go to 1.25 or 1.5% of GDP," the economist said.
Another challenge is to "make the money work, is to implement the
investments."
Earlier this month, Brazilian President Dilma Rousseff announced a
broad-based rail and highway concession program involving total
investments over the next 30 years of 133 billion reais ($65.6
billion). A similar program for ports and airports is likely to be
announced later this year.
Write to Luciana Magalhaes at luciana.magalhaes@dowjones.com
(END) Dow Jones Newswires
August 29, 2012 15:04 ET (19:04 GMT)
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