As a result, the central bank has cut interest rates sharply this summer, and the currency remains firm. The key trouble spots in the outlook are the long-term concerns about Brazil's sizable external debt and its commitment to fiscal responsibility. But household spending remains depressed, since the economy is not growing fast enough to cut unemployment.
Growth is powered mainly by strong business investment.
Exports are increasing, and imports are also strong. Prices are expected to pick up this quarter because of government-administered price hikes for electricity, telecom, and gasoline. Further reductions seem likely, given that inflation-adjusted rates are very high, but analysts do not expect them until after the October municipal elections. All this is improving Brazil's fiscal accounts. But with the October municipal elections looming, some of that surplus will very likely be spent, especially since support for reform President Fernando Henrique Cardoso has waned after the huge 1999 currency devaluation and high unemployment.