Brazil's Real Drops on Economic Woes as China Trade Disappoints

  • Economists in central bank survey cut 2015, 2016 GDP forecasts
  • Currency is the worst performer among 31 major tenders

The Brazilian real slumped as economists in a central bank survey said the recession is worsening, while a disappointing trade report out of China shows it’s unlikely the Asian nation can help fuel a rebound anytime soon.

The real dropped 0.8 percent to 3.7993 per dollar Monday in Sao Paulo. The currency is down 30 percent this year, making it the worst performer among 31 major counterparts to the dollar tracked by Bloomberg.

Economists now forecast Brazil’s economy will shrink 3.1 percent this year and 1.9 percent next year, deeper than the 3.05 percent and 1.51 percent contractions they had estimated a week ago, according to the central bank survey published Monday. Adding to Brazil’s economic woes, Chinese overseas shipments declined 6.9 percent in October in dollar terms, the customs administration said, a bigger decline than estimated by all 31 economists in a Bloomberg survey. China is Brazil’s biggest trading partner.

"At this stage, we are desperately watching the world’s growth engines sputtering, and it is now clear that the external demand and foreign investments that Brazil is craving could be further damaged by recent negative developments across Europe and Asia," said Ipek Ozkardeskaya, an analyst at London Capital Group. "The domino effect is taking place and there is unfortunately little to do in the short-run to avoid a spillover."

Brazil’s benchmark rate will be 13.25 percent at the end of next year, according to the central bank survey of about 100 analysts. That’s up from the previous week’s estimate of 13 percent, and 12 percent at the start of September.

A weaker currency coupled with the government’s inability to rein in the budget deficit has fueled speculation that inflation will persist above target levels even as the economy shrinks. Consumer price increases will reach 6.47 percent next year, compared with a 4.5 percent goal, according to the survey. Policy makers kept Brazil’s key rate at 14.25 percent for a second straight meeting last month.

The government said last month it is no longer targeting a primary surplus in 2015, and now foresees a deficit of 51.8 billion reais ($13.7 billion).

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest-rate moves, rose 0.10 percentage point to 15.45 percent.

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