VZCZCXRO9619
RR RUEHRG
DE RUEHSO #0426/01 1381029
ZNR UUUUU ZZH
R 181029Z MAY 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 6959
INFO RUEHBR/AMEMBASSY BRASILIA 8093
RUEHRG/AMCONSUL RECIFE 3579
RUEHRI/AMCONSUL RIO DE JANEIRO 8076
RUEHBU/AMEMBASSY BUENOS AIRES 2732
RUEHAC/AMEMBASSY ASUNCION 3003
RUEHMN/AMEMBASSY MONTEVIDEO 2338
RUEHSG/AMEMBASSY SANTIAGO 2047
RUEHLP/AMEMBASSY LA PAZ 3346
RUEHFR/AMEMBASSY PARIS 0265
RUCPDOC/USDOC WASHDC 2782
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 000426 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR FEARS 
STATE PASS FEDERAL RESERVE FOR PROBITAILLE 
STATE PASS USTR FOR SCRONIN 
DEPT OF TREASURY FOR JHOEK 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MCAMPOS 
USDOC ALSO FOR 3134/USFCS/OIO/WH 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CMERVENNE 
PARIS FOR ECON - TOM WHITE 
USAID FOR LAC/AA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EIND BR
SUBJECT: BRAZIL'S NEW GDP METHODOLOGY RESULTS IN HIGHER GROWTH 
FIGURES 
 
 
¶1.  SUMMARY:  The Brazilian Institute of Geography and Statistics 
(IBGE), in an effort to bring its methodology to determine Brazil's 
GDP growth into line with international standards, recently revised 
its current methodology, establishing 2000 as the base year.  The 
highest differences between the new and the old GDP series are 
concentrated in the period from 2000 through 2006.  The new method 
yields an accumulated growth figure of 24.1 percent compared to 19.6 
percent under the previous method.  Higher economic growth in 2006 
and changes in key solvency indicators, notably the debt-to-GDP 
ratio, will better capture the momentum of internal demand.  End 
Summary. 
 
BRAZIL'S GDP REVISION IN LINE WITH INTERNATIONAL STANDARDS 
------------------------------------- 
 
¶2.  Using a new methodology that follows international standards 
established by the United Nations and other organizations such as 
the International Monetary Fund (IMF) and the World Bank, the 
Brazilian Institute of Geography and Statistics (IBGE) recently 
released revised Gross Domestic Product (GDP) figures for the years 
2000 through 2006 that showed greater economic expansion than 
previously registered.  The new series uses a broader range of 
information sources, including IBGE's annual surveys of economic 
segments as well as information from tax receipts and household 
surveys, aiming at a better measurement of the country's GDP.  As a 
result, certain economic activities that previously were only 
estimated, such as government consumption and financial 
intermediation, are now actually measured.  Another improvement is 
an updating of the weight of different economic activities, so that 
services such as telecommunications and transportation are given 
more weight. 
 
¶3.  The new GDP series presented higher real growth rates for five 
out of the six years released (see below).  The highest differences 
were registered in 2002 and 2004, when rates moved to 2.7 percent 
and 5.7 percent from the 1.9 and 4.9 percent previously calculated. 
Total growth in the period was revised upward to 19.3 percent versus 
16.3 percent under the old methodology. 
 
Comparing GDP Growth: 
 
        Old GDP Series (percent)    Revised GDP Series (percent) 
 
2005          2.3                              2.9 
2004          4.9                              5.7 
2003          0.5                              1.1 
2002          1.9                              2.7 
2001          1.3                              1.3 
2000          4.4                              4.3 
 
¶4.  Looking at GDP demand indicators, the changes were concentrated 
in the areas of 1) an increase of household consumption to 60 
percent of GDP from the previous 55 percent; 2) a reduction of 
investments to 16.3 percent of GDP from previous 20.1 percent; and 
3) a decrease in exports to 15.1 percent from previous 16.7 percent. 
 The reduction of investment participation was concentrated in civil 
construction, while capital goods consumption increased to 7.8 
percent of GDP. 
 
¶5.  A significant change was the proportion of services from the 
supply side indicators.  This component participation climbed to 
66.7 percent in 2000 from 56.3 percent calculated under the old 
methodology, propelled by higher contributions from 
telecommunications, retail, transportation and other services.  On 
the other hand, there was a reduction in the share of agriculture 
and industrial activity from 7.7 percent to 5.6 percent and from 
36.1 percent to 27.7 percent, respectively. 
 
 
SAO PAULO 00000426  002 OF 002 
 
 
¶6.  According to the new methodology, investment comprised a smaller 
share of the economy between from 2000 and 2005 than previously 
estimated.  Also, the growth previously registered in investment's 
share of GDP over the past two years was much smaller than 
originally thought. 
 
Investment as a Share of GDP: 
 
      Old GDP Series (percent)   Revised GDP series (percent) 
2005         20.6                        16.3 
2004         21.3                        16.1 
2003         17.8                        15.3 
2002         18.3                        16.4 
2001         19.5                        17.1 
2000         19.3                        16.8 
 
BRAZIL REVISES GDP UPWARD FOR 2006 - A BRIGHTER OUTLOOK 
----------------------------- 
 
¶7.  Data released by IBGE using the new methodology showed more of 
an improvement in Brazil's GDP in 2006 than figures originally 
indicated, boosted by a 4.1 percent growth in agriculture, 4.6 
percent in civil construction, and 4.8 percent expansion in the 
retail sector.  Thus, using the new methodology, IBGE reported that 
the economy actually grew 3.7 percent versus the previous 
announcement of 2.9 percent - a difference of 0.8 percentage points. 
 The new methodology takes into consideration 56 activities and 110 
products, while the previous methodology used 43 activities and 80 
products.  The revised data showed Brazil's GDP was USD 1.1 trillion 
in 2006, an all-time high.  IBGE also reported that per capita GDP 
climbed 2.3 percent in 2006 to USD 5,700, with household consumption 
was up 4.3 percent.  Thus, accumulated GDP growth from 2000 through 
2006 was 24.1 percent, as opposed to 19.6 percent using the old 
methodology. Also under the revisions, Brazil's debt as a percentage 
of GDP declined from 50 to 45 percent. 
 
¶8.  COMMENT:  The new methodology introduced by IBGE indicates that 
Brazil's economic performance was stronger than previously reported. 
 The new methodology also puts more emphasis than before on areas 
like technology, technological services and financial market 
activities.  The new GDP figures are intended to more accurately 
reflect the changing nature of the Brazilian economy.  It is 
noteworthy, however, that the new figures reveal that investment 
comprises a smaller share of the economy than previously believed. 
Without reform of its pension system, application of more stringent 
controls of government expenses, improvement of the business 
environment, the effective implementation of structural reforms and 
a more open economy, Brazil will continue to struggle to attract 
investment and to sustain a more economic robust growth rate, 
regardless of methodology.  End Comment. 
 
¶9.  This cable was coordinated with Embassy Brasilia. 
 
MCMULLEN