Brazil May Overheat on ‘Excessive’ Investment, Coutinho Says

Brazil’s economy may overheat as too much foreign investment flows into the country, said Luciano Coutinho, president of state development bank BNDES.

“We are worried about excessive inflow or excessive growth this year,” Coutinho said during an interview at Bloomberg’s London office yesterday. He added that the government is seeking economic growth of 5 percent to 5.5 percent in 2010.

Foreign investors are piling money into Latin America’s largest economy as the country builds houses, roads and stadiums for the 2014 World Cup soccer tournament and 2016 Olympic Games in Rio de Janeiro. Gross domestic product has tripled since President Luiz Inacio Lula da Silva came to power in 2003.

Foreign direct investment will jump 47 percent this year to $38 billion, according to the median forecast of about 100 economists in a central bank survey published this week. International investors added 20.5 billion reais ($11.4 billion) to their stock holdings last year, the most since records began in 1994, as the benchmark Bovespa Index gained 83 percent.

The Brazilian real will be “somewhat volatile” against the dollar in the coming months as the U.S. economy starts to recover, Coutinho said. The return to growth in the U.S. will lead to a stronger dollar and a weaker real, he said.

The real may also decline against the euro, he said.

The Brazilian currency has fallen 2.6 percent this year against the U.S. dollar, after rising 33 percent last year.

“I do not see a trend for consistent appreciation of the real,” Coutinho said in the Bloomberg television interview in the U.K. capital, where BNDES opened an office last year. “I would advise investors not to bet on an excessive appreciation of the real.”

No Capital Controls

The central bank will intervene in the case of “excessive” inflows or further appreciation of the currency, the bank’s president said. The government doesn’t intend to adopt capital controls and would use “conventional” market instruments to contain appreciation, he said.

Brazil’s economy may have grown a “small” amount last year as it recovered from its first recession since 2003, Planning Minister Paulo Bernardo told reporters in Brasilia yesterday, when asked about his expectations for the gross domestic product figures that will be released March 11.

The economy will grow 5.5 percent in 2010, according to the median estimate of analysts in Feb. 26 central bank survey published March 1. The central bank estimates economic growth of 5.8 percent this year and foreign direct investment of $45 billion.

BNDES, which was founded in 1952 and provides financing in Brazil and overseas, lent a record $72 billion last year, Coutinho said yesterday.