Brazilian Central Bank on Tuesday forecast that Latin America's biggest economy would expand 3.5 percent in 2004 after a year of near-zero growth as lower interest rates kicked in and exports galloped ahead.
Favourable global conditions and spare capacity in the idling economy should drive a recovery without stoking inflation, the bank said.
"Despite recovery in economic activity, consumer price indices continue registering relatively low variations and this trajectory is expected to continue in 2004," the bank said in its quarterly inflation report.
The bank's 2004 GDP projection was below the 4 percent growth forecast in the government budget.
In its final quarterly inflation report of the year, the bank said it expected 2003 gross domestic product (GDP) growth of 0.3 percent, compared with a forecast of 0.6 percent in the report published in September.
The bank has slashed interest rates by 10 percentage points since June, helping to pull the economy out of recession in the third quarter. But, although investor optimism is higher and the stock market has hit record highs, recovery has been slow so far.
The economy slumped into a recession in 2003 after interest rates were raised to 26.5 percent to curb inflation, which hit a seven-year high in 2002.
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