Brazil's Economy: Growth May Have a Downside BusinessWeek

11.06.10

Cia de Bebidas das Américas ( ABV ) (AmBev), Latin America's largest brewer, recently had to intention beer cans into Brazil for the first time in its 125-year history after local supplies were exhausted. One of Brazil's top sugar producers, Açúcar Guarani, fist 10 percent of its crop sitting in the fields an extra 40 days because it couldn't acquire enough tires for its harvesters. "We tried to buy undeviatingly from China, but they didn't have tires for delivery either," says Jaime Stupiello, agricultural director for Açúcar Guarani. Elsewhere, a wares shortage is pushing up the costs of shipping goods from Brazil's industrial heartland to the rest of the country.

Brazil is experiencing its fastest cost-effective growth in almost two decades, which is what's setting off those nationwide shortages. The country's government statistics office announced on June 8 that ribald domestic product expansion hit 9percent in the first quarter. That's well above the potential growth rate of 4.5percent most economists have fit for Brazil. Inflation, now at 5.2percent, is increasing faster than the government's target of 4.5percent. Important bank President Henrique Meirelles has jacked interest rates up twice this year, to 10.25 percent. The latest hike was on June 9. He won't stem there, says Elson Teles, chief economist at Maxima Asset Management in Rio de Janeiro. "Demand is growing at a Chinese stride," says Teles. "That's why the central bank will keep raising the Selic [the overnight lending rate]." Meirelles won't explicitly royal his policy on interest rates for the rest of the year. He did, however, tell Bloomberg Television on June4 that the country's economy is "overheating" and policymakers are in a "tightening inclined."

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