Brazil Economists Cut 2015 Growth Forecast to Slowest on Record

Brazil economists cut their 2015 growth forecast for the first time in five weeks on prospects that spending cuts and higher energy and gasoline prices will slow the country’s economic recovery.

Brazil’s gross domestic product will expand 1.20 percent in 2015, compared with the previous week’s forecast of 1.5 percent, according to the Aug. 8 central bank survey of about 100 analysts published today. That’s the lowest estimate since the central bank started publishing the data in January. Economists forecast 0.81 percent growth this year, compared with 0.86 percent the previous week.

President Dilma Rousseff is working to stem a worsening economic outlook as she campaigns for re-election in October. Annual inflation at the upper limit of policy makers’ target range is curbing purchasing power and undermining investment. The central bank last week reaffirmed plans not to cut the key rate and said effects of the monetary tightening cycle ended in April are still to materialize.

“Next year will be a time of adjustments -- increases to government regulated prices will be needed and measures on the fiscal side must be taken to prevent losing the investment grade rating,” Newton Rosa, chief economist at Sul America Investimentos, said in a phone interview from Sao Paulo. “There are no signs that point to a solution to the problems that are affecting industry, specially investments.”

Swap Rates

Swap rates on the contract due in January 2016 fell 4 basis points, or 0.04 percentage point, to 11.37 percent at 9:04 a.m. local time. The real strengthened 0.47 percent to 2.2726 per U.S. dollar.

Brazil’s economy grew by 0.2 percent in the first quarter, half of the pace of the expansion recorded the three months prior, as family consumption and investments shrank. Industrial production in June contracted for the fourth straight month as capital goods output dropped, the national statistics agency said on Aug. 1.

Standard & Poor’s in March downgraded Brazil’s sovereign credit rating one level to BBB-, one step above junk, with a stable outlook. The move, which was prompted by weak growth and an expansionary fiscal policy, ended a decade-long stretch of upgrades for the world’s second-largest emerging market.

The central bank kept the benchmark Selic rate unchanged at 11 percent in its two previous meetings, after raising it by 375 basis points in the year through April. While monthly inflation slowed in the past four months, annual price increases continue to hover around the upper limit of the central bank’s target.

Brazil’s consumer prices in July decelerated to 0.01 percent from 0.40 percent the month prior, below estimates from all 46 economists surveyed by Bloomberg. Annual inflation slowed to 6.5 percent, above the 4.5 percent midpoint of the central bank’s target range.

Inflation will slow to target if current interest rates are maintained, central bank President Alexandre Tombini told a Senate hearing on Aug. 5. It’s clear that rate cuts are not contemplated, the central bank’s director for economic policy, Carlos Hamilton, told reporters in Rio de Janeiro two days later.

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