Brazil Economists Cut Growth Estimates for This Year and Next

Brazil economists cut both 2014 and 2015 growth estimates for the second week in a row on signs that a period of waning economic activity has extended beyond the first quarter.

Brazil’s economy will expand 1.44 percent this year and 1.80 percent in 2015, compared with the previous week’s forecast of 1.50 percent and 1.85 percent, respectively, according to the June 6 central bank survey of about 100 analysts released today. Both estimates are the lowest since the central bank started publishing the data.

President Dilma Rousseff’s administration is caught between above-target consumer prices and slowing growth. Brazil’s economy in the fourth quarter expanded at half the pace of the previous three months on drops in investment and consumption. Slower growth coupled with a year of key rate boosts were unable to prevent annual inflation in May from increasing for the fourth straight month.

Latin America’s largest economy grew 0.2 percent in the first quarter, half the pace of the expansion recorded during the last three months of 2013. While agriculture increased 3.6 percent on the quarter, investment fell 2.1 percent and consumer spending dropped 0.1 percent.

Industrial output in April contracted 0.3 percent from March in the second straight month-on-month decline. Retail sales in the same month expanded by 0.1 percent after contracting by 0.5 percent the month prior, according to the median estimate from 22 economists surveyed by Bloomberg. The national statistics agency will publish the official retail figure on June 12.

Benchmark Rate

Central bankers on May 28 decided to hold the benchmark Selic unchanged at 11 percent after increasing borrowing costs by 375 basis points during the previous nine meetings. In an accompanying statement, policy makers said they decided “at this moment” not to move borrowing costs.

In the minutes to their May 27-28 meeting released last week, Brazil’s central bank signaled it will keep interest rates unchanged as it awaits the delayed impact of a yearlong tightening cycle. Policy makers also said the expansion of domestic activity tends to be less intense compared to last year.

Brazil’s consumer prices in May rose 0.46 percent from the month prior, more than economists’ forecast of a 0.38 percent increase, the national statistics agency said on June 6. Annual inflation jumped to 6.37 percent from 6.28 percent the month prior, marking the fastest pace since June.

The central bank targets annual inflation at 4.5 percent, plus or minus two percentage points. Policy makers will release a revised economic growth forecast in their quarterly inflation report this month.

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