OECD Sees Brazil 2016 Recession Deepening to 4 Percent Drop

  • OECD's 2016 forecast worse than all but two analysts surveyed
  • Analysts, IMF and S&P forecast recession will lessen this year

The OECD more than doubled its forecast for Brazil’s 2016 recession, projecting it will be even worse than last year. That makes it more bearish than the International Monetary Fund and most analysts surveyed by Bloomberg.

Brazil’s economy will contract 4 percent this year after a 3.8 percent recession in 2015, the Organization for Economic Cooperation and Development said Thursday in a report. The 2016 forecast was revised down from a prior 1.2 percent decline, and is worse than estimates of all but two of 35 analysts surveyed by Bloomberg. Their median forecast is for a 2.8 percent drop this year after a 3.7 percent decline last year.

Latin America’s largest economy is sinking as demand withers. Consumers who for most of the past decade have been Brazil’s growth engine have had their confidence shot by rising joblessness and double-digit inflation. At the same time, investment has been rattled by the nation’s largest-ever corruption scandal, and the government is struggling to implement a fiscal adjustment to shore up its finances.

“Looking at the data we’ve had over the last couple of weeks, we don’t seem to be out of the woods yet,” Jens Arnold, head of the OECD’s Brazil desk, said by phone from Paris. “There is still a lot of negative news, and that’s why we’re still continuously revising downward.”

Last month, the International Monetary Fund cut its outlook for Brazil’s economic activity to a 3.5 percent contraction this year after a 3.8 percent decline in 2015. Like the IMF, the OECD forecasts stagnation for 2017, down from a prior forecast for 1.8 percent growth.

Standard & Poor’s on Wednesday downgraded Brazil’s sovereign debt to the second-highest junk rating, saying a prolonged fiscal adjustment and political uncertainty are preventing the economy from resuming growth. The ratings company forecasts a contraction of about 3 percent in 2016, following a 3.6 percent recession last year. Brazil’s statistics agency will release fourth-quarter GDP data on March 3.

The OECD report cited ongoing political uncertainty and rising inflation as prompting the deeper 2016 recession in Brazil. The OECD’s less optimistic view for global economic growth also dragged down the forecast, Arnold said.

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