Entering 2001, there were widespread expectations that the economic trends would continue along the same lines. However, the economy has been hampered by several factors, most notably an economic crisis in Argentina, falling growth in the major world economies, a serious electricity shortfall in Brazil, and most recently the aftermath of the September 11  terrorist attacks in the United States.

GDP growth projections for the year are now around 1.6 percent. Market expectations for GDP growth in 2002 are 2.5 percent.

In the past decade, Brazil has undertaken a number of economic reforms that should allow it to absorb these shocks. In 1994, Brazil initiated an economic stabilization plan, known as the Real Plan. The plan was highly successful in reducing longstanding inflation. The plan also inaugurated one of the world’s largest privatization programs. However, growth slowed, the economy was dependent on external financing, and the government failed to control its finances, which left the economy vulnerable to external shocks. Following the Russian debt default in August 1998, the economy entered into recession. In spite of a $42 billion assistance package negotiated with the IMF and other lenders, the government was forced to float and devalue the real in January 1999. Brazil complied with all the key targets in its 1998 program, and in August 2001 signed a new $15 billion program with the IMF, which extends until December 2002.

However, investment declined in 2001 (the 2001 estimate is $19 billion), so part of the current account deficit will have to be financed by external borrowing. Foreign direct investment for 2002 is expected to be around $15 billion. The trade balance probably will likely show a small surplus in 2001, and an improved outlook in 2002 (an approximately $3 billion surplus).

Exports have grown rapidly but have been hampered by weak prices for Brazilian commodities and more recently by slowing foreign demand. Meanwhile, imports, which had grown rapidly, have dropped recently because of weak local demand.

Manufacturing activity grew 5.7 percent and construction by 2.1 percent. In the services sector, the communications subsector turned in the best performance by far with a 17 percent expansion. Commerce rose 5.5 percent and transportation 3.4 percent. GDP grew 3.1 percent in the first half of 2001, but growth will be much lower in the second half of the year.

In 2001, Brazil's average applied tariff was 13.8 percent. Brazil currently maintains no applied tariff rates in excess of 35 percent, but does have safeguard measures in place for some imports, such as toys. A small number of imports are banned altogether, such as re-manufactured auto parts.

Brazil and its Mercosur partners, Argentina, Paraguay and Uruguay, implemented the Mercosur Common External Tariff (CET) on January 1, 1995. The CET covers approximately 85 percent of 9,394 tarif items and ranges between zero and 23 percent. Most of the remaining 15 percent should be covered by 2003, and full coverage should be reached by 2006. Exceptions to the CET include telecommunications equipment, computers, some capital goods and products included on Brazil's national list of exceptions to the CET, such as footwear, powdered milk, automobiles, wine and consumer electronics.