Brazil on a Roll: 5% Growth in 2010 and 5th Largest Economy by 2016

The Brazilian government is considering extending stimulus tax cuts on home appliances even as the country's economic recovery shows signs of gaining momentum. Tax cuts helped Brazilian auto industry sales to soar.

Brazil's Finance Minister Guido Mantega said this Monday, October 26, he would decide by the end of the month whether to extend tax cuts on home appliances. The decision hinges on a commitment by retailers and manufacturers to hire more workers and provide better financing to consumers, he told reporters in São Paulo.

The International Monetary Fund last week said Brazil and other Latin American economies emerging quickly from the global financial crisis should consider removing fiscal stimulus measures as strong capital inflows put pressure on currencies to appreciate.

Brazil in April cut taxes by as much as 10 percentage points on several home appliances, providing incentives for consumers to boost spending and lead the US$ 1.6 trillion economy out of its first recession since 2003. Retail sales in August rose for the fourth straight month, by 0.7% from July.

Brazil is expected to grow 4.8% next year, according to a last week Central Bank survey of about 100 economists. In July, economists were forecasting 2010 growth of 3.5%.

Brazilian President Luiz Inácio Lula da Silva said Monday the country needs lower taxes to spur domestic demand and meet a World Bank forecast to become the world's fifth-largest economy by the time it hosts the 2016 Olympics.

Lula addressing the nation in his weekly radio program said lower taxes coupled with government steps to boost credit will encourage Brazilians to "purchase what they still don't have."

Writing today in his weekly newspaper column "The President Answers," Lula informed that the government has been acting to stimulate production and avoid speculation and as example he cited the recent introduction of the 2% Financial Operations Tax on short term foreign investments.

Another measure to prevent speculation, according to the president, is the reduction in Brazil's key interest rate, the Selic. He stressed that at 8.75% at the moment, the Selic is the lowest in Brazilian history. Lula said also that the government has reduced the spread of public banks to force private banks to follow the same path. 

MP/Bzz