Brazil's President Dilma Rousseff attends a ceremony to launch a project to combat poverty in southeast Brazil, in Sao Paulo Aug. 18, 2011.Paulo Whitaker/Reuters
Brazil is starting to suffer contagion from the global economic crisis, but the government will do everything within its power to prevent a recession, President Dilma Rousseff said on Friday.
"The main objective of my government is ... to guarantee that, at this time, we are able to contain the perverse effects of a crisis that we did not create, and that could hit Brazil," Ms. Rousseff told a local radio station.
"It's obvious that the crisis has an effect," she added.
Brazil's benchmark Bovespa index of the Sao Paulo stock exchange's most-traded stocks fell 0.33 per cent. Brazil's currency, the real, gave up early gains to trade at 1.5980, unchanged from Thursday.
Brazil's economy has shown clear signs of cooling since roughly June. While some of the slowdown can be traced to problems in Europe and the United States, local factors such as high interest rates, weak manufacturing activity and a reduced pace of consumer spending have also weighed.
Several economists have slashed their economic forecasts for Brazil in recent days. On Thursday, Morgan Stanley cut its 2011 growth outlook for Brazil to 3.7 per cent from four per cent. It cut its 2012 estimate to 3.5 per cent from 4.6 per cent.
The government is considering cutting its 2011 gross domestic product (GDP) forecast to around 4 per cent growth from 4.5 per cent, the Valor Economico newspaper reported on Friday.
A government spokesman declined to confirm the report.
Some business leaders and economists expect the country is now settling into a pattern of slower growth of about three per cent to four per cent in 2011 and in coming years, which would put Brazil behind its peers in the BRIC group and other major Latin American economies. BRIC stands for Brazil, Russia, India and China.
Morgan Stanley said it expects China to grow 8.7 per cent in 2012 while India grows 7.4 per cent and Russia 5.2 per cent.
Ms. Rousseff said she believed the best way to fend off the crisis was to stimulate job growth. A burst of government-subsidized credit, spending and other stimulus helped Brazil avoid the worst of the 2008-09 crisis, but has also caused enduring problems such as high inflation.
"In 2009, we took all the measures. Brazil entered into the crisis, so much so that we had a decline in GDP, but ... we came out of it in 2010," Ms. Rousseff said.
"What we're trying to do this year is not even go into a crisis, stop it at the door. Is it difficult? It's difficult. We're not immune, we're not an island."
High inflation above seven per cent on an annual basis, and heavy pressure on fiscal accounts, mean Ms. Rousseff's government will likely not have as many tools at its disposal this time around to stimulate the economy.
With files from Jeb Blount