Brasilia  - The Brazilian government enacted additional tax cuts on Monday in the face of shrinking forecasts for gross domestic product amid the global economic downturn.

The move came after the country's central bank on Monday reduced its economic outlook for GDP to 1.2 per cent for the year from 3.2 per cent.

Finance Minister Guido Mantega announced a reduction of taxes on building materials and an extension of a tax break on cars. The government hopes to make up for the expected tax shortfall by increasing cigarette taxes to 30 per cent.

According to the Banco Central, the industrial sector has been hardest hit by declining demand - with forecast growth of 0.1 per cent instead of 3.4 per cent. The bank also predicted inflation of 4 per cent, revised downward from 4.7 per cent.

"I would be satisfied if we had growth this year of 1 or 2 per cent," Mantega said in announcing the tax moves in Sao Paulo. As recently as December, the government said a growth rate of 4 per cent was possible. dpa