IMF says Brazil recovering from slowdown, backs more reforms

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013.

Credit: Reuters/Yuri Gripas

BRASILIA | Wed Aug 28, 2013 4:47pm BST

BRASILIA (Reuters) - Brazil's economy is recovering gradually from the slowdown that began in mid-2011, but more efforts to boost productivity, competitiveness and investment are critical for spurring growth, the International Monetary Fund said on Wednesday.

In a report based on annual consultations with Brazilian economic authorities, the IMF praised Brazil's focus on reforms to ease supply-side constraints, saying it would boost investment and alleviate infrastructure bottlenecks.

Latin America's largest economy, which rode high on a decade-long commodities boom, is in its third year of slow growth that has defied stimulus efforts by President Dilma Rousseff's government through tax breaks and other incentives aimed at spurring industrial output.

"After a protracted period of weakness, investment has begun to recover in recent quarters while business confidence has firmed," the IMF report said.

Low unemployment and hefty real wage gains have kept consumption strong and, with the economy operating at close to potential, supply constraints have held back growth and fuelled inflation, the report said.

The IMF welcomed the initiation of a monetary tightening cycle by Brazil's central bank, which is expected to hike its benchmark Selic rate by another 50 basis points later on Wednesday. The bank started in April an aggressive rate tightening cycle that brought rates from record low of 7.25 percent to 8.50 percent in July.

"In addition to headwinds from external conditions, domestic supply-side constraints and policy uncertainties may be holding back near-term growth," the IMF said.

The IMF said it will be important for Brazil to increase domestic saving, improve the minimum wage indexation mechanism and continue to reform its pension system.

"Other efforts to foster private investment should include streamlining taxation and improving business conditions," it said.

The IMF said Brazil's banking system is sound and well placed to implement Basel III capital requirements ahead of schedule. But it warned that household credit and mortgage loan levels remain risky and warrant vigilance.

Brazil's flexible exchange rate remains the best shock absorber to cushion the country from external financial turbulence, as long interventions in the foreign exchange market are limited to moderating excessive volatility, the IMF said.

In a bold move, the central bank last week launched a $60 billion (38 billion pounds) forex intervention program to ease the depreciation of the real that has lost about 15 percent of its value since May.

(Reporting by Anthony Boadle; Editing by Chizu Nomiyama)

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Recovering UK economy shows broader, faster growth

1 of 2. A shopper leaves a Marks & Spencer store in Leicester, central England March 18, 2013.

Credit: Reuters/Darren Staples

By Olesya Dmitracova and Kate Holton

LONDON | Fri Aug 23, 2013 6:53am EDT

LONDON (Reuters) - Britain's economy grew faster than expected in the second quarter, benefiting from a broad-based pick-up in activity that looked to have put the country's burgeoning recovery on a firmer footing.

Gross domestic product expanded 0.7 percent from the previous quarter, data from the Office for National Statistics showed on Friday, beating its initial estimate and economists' forecasts and putting Britain's growth rate on a par with European powerhouse Germany.

"It does look like the recovery is becoming more self-sustaining," said Philip Shaw, economist at Investec.

Stocks gained after the data, which also showed output rose by a surprisingly strong 1.5 percent from a year ago.

The pound and government bond yields rose, highlighting expectations that the revival could force Britain's central bank to raise interest rates earlier than it has indicated.

British exports rose at the fastest pace since late 2011 and business investment grew faster than household spending, suggesting a shift towards more balanced growth in an economy that has been driven mainly by domestic consumption and imports.

RATES CONUNDRUM

In an effort to encourage spending and investment, the Bank of England said earlier this month it would not raise borrowing costs while unemployment remained above 7 percent, a level it did not expect to be breached for at least three years.

But the threshold may be crossed sooner if Britain's recovery maintains momentum, and since the bank gave its forward guidance, the news on the economy has been predominantly upbeat.

Factories' order books looked in their best shape for two years in August, consumer confidence and retail sales soared in July, and surveys found robust growth across manufacturing, construction and services at the start of the third quarter.

"The Bank of England is therefore facing a growing challenge of how to convince the markets and households that interest rates will not need to rise over the next three years," said Chris Williamson, economist at financial data company Markit.

In a speech next week, BoE governor Mark Carney is tipped to try to talk down expectations of an earlier rise in the base rate, which have caused conditions to tighten on money markets.

Friday's data showed that most key output components of GDP expanded more than originally thought.

Britain's service sector - which makes up more than three quarters of GDP - grew 0.6 percent compared with the first quarter, as estimated earlier.

But manufacturing output growth was heavily revised up to 0.7 percent and the volatile construction sector posted a 1.4 percent rise, also much better than found a month ago.

The increase in building activity is running in parallel with an upturn in the property market, fuelled in part by a state-backed mortgage scheme that critics fear could lead to a new price bubble.

Britain's economy is still 3.2 percent smaller than at its peak in the first quarter of 2008.

(Editing by John Stonestreet)

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