Brazil Analysts Forecast Faster Economic Recovery Under Temer

Latin America’s largest economy will recover faster than previously expected as Acting President Michel Temer proposes austerity measures needed to win back investor confidence, according to analysts surveyed by the central bank.

Economists in the weekly Focus survey forecast the Brazilian economy will shrink 3.71 percent this year and expand 0.85 percent in 2017. Just a week ago, they expected gross domestic product to contract 3.81 percent in 2016 -- roughly the same as in 2015 -- and to grow 0.55 percent next year.

The revisions represent a vote of confidence in the Temer administration, which has been pushing through Congress measures to eliminate some legally-mandated spending requirements and to impose limits to government expenditures. Markets have welcome the efforts which they see as necessary to win back investor confidence needed to boost an economy beaten by a prolonged recession.

While the economy is seeing recovering faster, inflation is also expected to be more stubborn. Economists estimate the benchmark IPCA consumer price index will rise 7.12 percent this year, compared to 7.06 percent a week ago. Inflation has repeatedly outstripped analysts predictions over the past few months, underscoring the challenge that lies ahead for incoming central bank president Ilan Goldfajn.

Analysts maintained their year-end estimates for the benchmark rate before this week’s monetary policy decision that will be the last under outgoing central bank chief Alexandre Tombini. They see the Selic at 12.88 percent at the end of 2016 and 11.25 percent at the end of 2017.