Incentives helping Brazil’s economy inch to recovery

Finding the discount on a new Renault hatchback irresistible, lawyer Roni Figueiro of Porto Alegre, Brazil, took the plunge, plunking down $22,200 last week for the first new car he has ever owned.

Prodded by government incentives, consumers like Figueiro are not just keeping the Brazilian economy afloat amid the global crisis but propelling it toward a robust recovery next year, according to a survey of Brazilian economists made public by the central bank last week.

The expected recovery is another example of how things seem to be breaking Brazil’s way. Today, the nation will find out whether Rio de Janeiro will host the 2016 Summer Olympics. Last year, Brazil was named the venue for the 2014 World Cup soccer championship.

Figueiro has company in the driver’s seat. Brazil’s auto industry expects 2009 unit sales to reach a record 3 million cars and light trucks, a 10% increase. That compares with a 25% decline anticipated for U.S. vehicle sales.

“I’ve waited all my life for this. I’m 54 years old and have finally realized my dream,” Figueiro said. “If I didn’t act now, it would have been impossible in the future.”

In a forecast issued Thursday, the International Monetary Fund said Brazil is leading Latin American nations out of recession and will register flat to slight growth in 2009 before its economy expands at a rate of 3.5% in 2010.

By comparison, the IMF projects that Brazil will better Mexico, whose total economic output will shrink a startling 7% in 2009. The U.S. economy will contract an estimated 2.7%. Mexican and U.S. growth rates projected for next year were pegged at 3% and 1.5% respectively.

Consumer spending is a big part of Brazil’s success story. Incentives that have been offered to consumers by the government of President Luiz Inacio Lula da Silva include forgiveness of sales tax on cars, which lured Figueiro to the auto showroom in his city in southern Brazil.

The government is also mandating subsidized loan rates on homes and appliances underwritten by three state-owned lenders. To increase Brazilians’ spending power, Lula added public sector jobs this year and increased welfare payments to 11 million families by 30%, said Renato Baumann, an economist at the United Nations office in Brasilia.

Although they express reservations about inflation and the effect of Brazil’s strengthening currency on trade, economists seem to agree that incentives offered by Lula to minimize the effect of the global slump have worked -- at least so far.

Ernani Torres, an economist at the state-owned Brazilian Development Bank, said rising investment is another factor priming the growth pump. Foreign investment in factories and offices continued to pour into Brazil in 2009 despite the global gloom overall.

Moreover, foreigners are expected to invest up to $25 billion in Brazilian initial public stock offerings this year, a vote of confidence that Brazil’s economic system will withstand global gyrations.

An essential factor in that confidence is that Brazilian interest rates of 8.5% are the lowest in history in real terms, Baumann said.

Despite a 40% appreciation in the value of its currency against the dollar since the beginning of the year that has hurt the competitiveness of its manufactured exports, Brazil will still show a trade surplus in 2009 because of its global demand for natural resources, economists expect.

Mexico, on the other hand, is hurt by the slumping U.S. economy, he said, which has reduced demand for exports and also cut deeply into remittances sent home by Mexicans living and working abroad.

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