SAO PAULO — Lack of competitiveness is the main threat to Brazil's economic growth, experts say, after the finance minister announced a downward revision of the South American giant's growth forecast.
Brazil is the world's sixth-largest economy and the region's powerhouse. Still, it has recently been struggling to stave off a recession and is therefore seen as susceptible to economic woes in Europe.
On Tuesday, Finance Minister Guido Mantega told the Senate the official growth forecast was being revised downward to 4 percent from 4.5 percent.
Analysts saw that as a sure sign that government efforts to curb fallout from the eurozone crisis by boosting consumption potentially will not do the trick.
Zeina Latif, an economist at the University of Sao Paulo, noted that "consumption is being met by imports and no longer by (domestic) production."
Therefore, she said, the government's new stimulus measures such as lower taxes on car makers and easier credits for car buyers will not be enough.
"You need to tackle structural problems such as cost of transport, energy or labor," Latif added. "Interest rates will not resolve this and the trouble is that if industry is fragile, this will affect other sectors" due to lower investments."
Despite the sobering analysis, the government remains determined to press on with its strategy of cutting taxes and pressing private banks into lowering their interest rates in an effort to spur consumption in this country of 192 million people that posted a whopping 7.5 percent growth in 2010.
President Dilma Rousseff, for one, appears confident Brazil is ready to tackle any trouble from across the Atlantic.
"I can assure you that we are 100 percent, 200 percent or even 300 percent prepared," Rousseff said in a speech Monday in the southern state of Santa Catarina. "We will resist the crisis by creating jobs, by investing in infrastructure and social activities," she added.
Economists, meanwhile, warn that failure to properly prepare for ramifications of the eurozone crisis could fuel inflation.
Domestic inflation in Brazil reached 6.5 percent in 2011, the upper limit of the official target, but has tapered off in the first months of this year, meaning it could drop to or near the official target of 4.5 percent by end-2012.
"If Brazil does not register strong growth and cannot count on high prices of commodities, it will not be as attractive for foreign investors," Juan Jensen of the Sao Paolo consultancy warned in an interview with AFP.
"Even if the economy follows a growth trajectory, it is a rather weak growth and main symptom is lower industrial production," he said.
In the first quarter of this year, industrial production in this Latin American powerhouse fell three percent compared with the same period of last year.
"In industry, costs are higher ... and there is not enough productivity to compensate for this rise," Jensen added.
Reeling from higher imports and the loss of competitiveness caused by the strong real over the past few years, industry last year grew an anemic 0.3 percent, sharply down from 10.5 percent in 2010.
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