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Brazil Wants to Stimulate Economy by Cutting Primary Budget Surplus

Brazil's Bovespa The monetary authorities of Brazil cut the country's 2009 primary budget surplus target to 2.5% of GDP from 3.8% and set a target of 3.3% of GDP for the next three years, Finance Minister Guido Mantega said on Wednesday speaking at a Congressional hearing.

The government also expects economic growth of 4.5% in 2010 and inflation of 4.5% annually for 2010 through 2012, the ministry said as part of 2010 budget guidelines it published.

Earlier in the year the government said it would exclude priority spending worth 0.5% of GDP from its 2009 primary budget surplus target, which excludes interest payments. This year and next, the government will exclude spending from the state-run oil giant Petrobras in calculating the primary budget surplus, Mantega said.

Brazil's tax revenues have fallen sharply as a result of a slowing economy in recent months.

Even when the Brazilian government insists the economy could grow 2% this year, the private sector expects a contraction of 0.3%, sharply down from growth of 5.1% last year.

Nevertheless Mantega said the Brazilian economy will recover gradually over coming months to post growth of 3-4% in the fourth quarter of this year, thus "likely avoiding a recession" and net job losses in 2009.

"I would say that the economy, in March and April, has already shown signs of some recovery," he said. "That doesn't mean that the crisis has ended, but the most severe phase has been left behind."

Mantega said credit flows had already begun to return to the local financial system and that local industry had recovered ability to finance its production. Much, however, could depend on the pace of recovery in large industrialized countries such as the US he cautioned.

"There is still a lot of caution throughout the world economy and consumers abroad are hesitant to invest in an environment of high unemployment," Mantega noted.

According to the Brazilian central bank's weekly market survey, the country's economy is seen contracting by 0.3% in 2009 and growing by 3.5% in 2010.

Mercopress

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