Brazil's economy is on the rebound

Mixed news: U.S. investors will benefit, but American markets face more challenge
This is an archived article that was published on in 2004, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

RIO DE JANEIRO, Brazil - Led by a boom in farm exports and car manufacturing, Brazil's economy is bouncing back after years of sluggishness.

It's good news not just for Brazilians, but also for U.S. companies and investors who have plunked billions into Brazil.

The country has been mired in slow growth since 2001, and last year its economy, the largest in South America, shrank slightly.

The latest economic figures tell a new story. Second-quarter growth topped 5.7 percent compared with the same quarter of 2003. A survey of financial experts released by the government Monday shows expected economic growth of at least 4.23 percent this year.

Burgeoning exports of soybeans, beef, chicken and citrus helped. In addition, falling interest rates prodded industrial and personal consumption.

If there is a fly in the ointment, it's that interest rates are likely to rise in the future to hold down inflation. And from Washington's point of view, there is a second downside: Brazil's top farm exports all challenge U.S. producers in global markets.

The timing of Brazil's surge couldn't be better for the country's leftist president, Luiz Inacio Lula da Silva. Midterm elections on Oct. 3 are tantamount to a referendum on his government.

''We are reaping what we have sown, and we will reap even more,'' da Silva boasted last week on his bi-monthly radio program. He promised to use the economic gains on social investments.

Da Silva, who surprised detractors and wary foreign investors by sticking faithfully to the U.S.-espoused open-market policies and fiscal discipline, deserves much of the credit. Embracing these policies cost da Silva support among the more radical elements in his Workers' Party.

''What does this mean for the government? It is tremendously important,'' said Christopher Garman, an analyst with Tendencias, an economic research and consulting firm in Sao Paulo. ''The Workers' Party traditional base of support is in large metropolitan regions, which are sensitive to high unemployment. With the economy going well and unemployment going down, this sort of concern diminishes.''