BusinessWeek Brazil has confounded experts with its quick rebound from what was expected to be a severe recession. But it's too soon to celebrate. The first-quarter GDP figure, while a pleasant surprise, was helped by strong output in agriculture that is unlikely to be repeated in the second quarter. And inflation has been kept under control largely because high interest rates have squashed demand for consumer goods.
Unemployment is also a big concern.
A significant improvement is unlikely until interest rates drop to the mid-teens, sparking the economy. In the meantime, President Fernando Henrique Cardoso's government has offered tax incentives to businesses such as auto makers in an effort to revive industrial employment. Five months after being forced to ditch its dollar-pegged exchange rate, Brazil has learned that devaluation doesn't always come with the expected inflation and export boom.