Brazil’s government says the nation’s economy expanded 2.7 per cent last year. That’s well below the 7.5 per cent growth seen in 2010.

The GDP figure underscores central bank President Alexandre Tombini’s view that the economy is growing below capacity amid Europe’s debt crisis, reinforcing bets that the central bank may accelerate the pace of interest-rate cuts.

“Brazil is losing international competitiveness,” John Welch, chief strategist for CIBC World Markets, said to Bloomberg. “They’re blaming all the problems on the exchange rate, but have ignored structural reforms.”

Brazil will offset the impact of slower global growth by maintaining a weaker exchange rate, lowering interest rates and taking other steps to stimulate the economy, Mantega told reporters in Brasilia today.

Losing its industry…

According to Bloomberg, companies from steelmakers to textile firms struggled last year as the real rallied to a 12-year high of 1.54 against the U.S. dollar in July, reducing the cost of imports. Among the hardest hit was shoemaker Vulcabras Azaleia SA, which said in December it was closing six factories due to import competition.

Brazil is losing its industry, the situation is the worst in years,” said Robson Andrade, head of the Brasilia-based National Industry Confederation. “We’re losing competitiveness because of the strong currency and the Brazil cost,” he said in a phone interview, referring to obstacles to productivity in Brazil such as aging infrastructure, a tax burden of about 36 percent of GDP and a shortage of skilled labor.

President Dilma Rousseff has attacked loose lending conditions in Europe and the U.S. for unleashing what she said yesterday in Hanover, Germany, was a “monetary tsunami” fueling currency gains in Brazil and other emerging markets.

“The capacity for the economy to grow at 5 percent on a sustainable basis without generating inflation is still not there,” said Goldman Sachs’ Alberto Ramos.

Source: Bloomberg

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