- Economists now expect the economy to shrink 3.21% this year
- Currency needs 10% drop to become attractive, Invesco says
Brazil’s real declined after forecasters increased estimates for both inflation and the depth of the recession in Latin America’s biggest economy.
The real dropped 0.6 percent to 3.9293 per dollar in Sao Paulo, the worst performance in Latin America. Markets in Brazil opened at 1 p.m. local time Wednesday after being closed Monday and Tuesday for the Carnival holiday.
The outlook for Brazil’s economy continues to worsen as analysts in a central bank survey published Wednesday said the nation is headed for a deeper recession, while policy makers struggle to get inflation under control. Economists in the survey expect gross domestic product to shrink 3.21 percent in 2016 and inflation to end the year at 7.56 percent.
"It’s the worst scenario possible: a larger contraction and faster-than-expected inflation," said Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo. "This highlights the bad economic and monetary policies and keeps souring the sentiment regarding Brazil."
The Brazilian currency needs to weaken an additional 8 percent to 10 percent before it will become attractive again, Invesco Advisers Inc. said.
“Brazil is going to get cheaper,” Sean Newman, a senior money manager who helps oversee $1.1 billion in emerging-market debt at Invesco in Atlanta, said in an interview. “Economic conditions are deteriorating this year. On top of that, we are seeing a weaker global growth environment. It’s too early to get back in the game there.”
Swap rates on the contract maturing in January 2017, a gauge of expectations on interest-rate moves, dropped 0.145 percentage point to 14.415 percent.