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Strong real casts a pall over Brazil's exports

RIO DE JANEIRO, Oct. 12 (UPI) -- Brazil's strong real is creating complications in an otherwise buoyant economy, most notably for the country's exports of cars, officials said.

The solution, they said, is to produce more cars, not fewer.

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Brazil's automotive production costs soared in response to the rising real which made imports of materials for components, including steel, more expensive.

Despite a healthy surge in automotive production the outlook is clouded by the prospect of higher prices turning customers away.

Brazil's car production is set to grow 13.1 percent in 2010, more than double the expansion predicted earlier. By year's end, Brazil will have produced at least 3.62 million automotive units.

As the real remains high against the U.S. dollar, keeping the current pace of exports has become a challenge, while increased prosperity prompts more Brazilians to choose imported foreign cars instead of vehicles produced at home.

The national automakers association, Anfavea, said Brazilian exporters were having to contend with exports of unassembled vehicles, which were in greater demand than finished vehicles.

"Overseas economies are recovering and they are absorbing more unassembled vehicles from Brazil," Anfavea President Cledorvino Bellini told reporters, adding the exporters would prefer to sell more fully assembled cars.

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Brazil exported more than 569,520 cars in the first three quarters of 2010, a 76 percent increase over the comparable period last year but still lower than the exports of 735,000 vehicles in 2008, most of them before the economic crisis.

Analysts said the latest figures showed that Brazil's car exports declined as a percentage of overall sales while imports rose. When compared with Brazil's exports in 2005 the current figures represent about half the previous ratio of total production -- 15 percent against 31 percent that year.

Bellini blamed higher energy and steel costs as well as the strong real for contributing to a decline in Brazil's car exports.

Imports have pushed the automotive industry into deficit, last recorded at $3.8 billion for the first eight months this year but likely to soar to $5 billion because of a continuing surge in imports.

The outlook for exports is worrying economic strategists who expect Brazil's economy to outstrip Italy's by 2011. Brazil, the eighth largest economy, is likely to become the seventh largest next year, IMF said.

An International Monetary Fund report said agriculture and the mining sector would continue to drive Brazil's growth.

Brazil's gross domestic product stands at $2 trillion, compared with $1.5 trillion for Russia and $1.4 trillion for India -- still way behind China's $5.7 trillion.

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