Earlier this year, analysts projected Brazilian GDP to grow at 4,9% in 2007. I found this figure to be ambitious. The reality is that Brazil will be clocking off 2007 with a substantial higher growth rate since the Brazilian economy expanded with a 5,7% in the third quarter. Brazil has been consistently lowering its interest rates over the past year, fueling consumer and business spending. Only now speculation arises that the Brazilian bank may keep borrowing costs unchanged for most of 2008 to cap inflation. For me personally this is good news. This will keep supporting the high Brazilian currency rate and make a nice yield on Brasilian bonds. I however believe that the Brazilian economy would thrive on a further decrease of the interest rate to a 9%.
There is a growing consensus amongst analysts that the US (and EU) economy is moving towards a recession in 2008. Some believe it to be a mild recession, personally I bet on a more severe scenario. I have the impressions that US and EU policy makers are not really fully aware of the significant downward risk to growth. Typically economists tend to overestimate the risk of rising inflation and underestimate the risk of downward growth. Especially today this is the case; there seems to be a view that EU and US growth will have just a 'dip' and resume in the second half of 2008. I'm (very) wary of such a scenario in the context of the current macro economical policies applied by the US and the EU.