IMF Cuts Brazil’s 2017 Growth Outlook to Near-Stagnation

Updated on
  • Brazil finance minister says economy will grow this quarter
  • IMF also lowers growth outlook for Mexico, Latin America

The International Monetary Fund more than halved its 2017 growth outlook for Brazil, citing weaker-than-expected activity in Latin America’s largest economy.

Brazil will grow 0.2 percent this year, compared with a prior forecast of 0.5 percent, the IMF said in an update of its World Economic Outlook. The fund is now more pessimistic than all but three of the 39 analysts Bloomberg surveyed and whose median forecast is 0.8 percent.

Like most economists, the IMF is tempering its optimism about the government of President Michel Temer. The fund had forecast stagnation for Brazil early last year, but boosted that outlook to a half-point expansion soon after Temer assumed Brazil’s presidency in May. 

Market optimism has mostly dissipated even as Congress approved government spending limits designed to foster investor confidence and the central bank started lowering borrowing costs. The economy remained mired in recession in the third quarter, while Finance Minister Henrique Meirelles maintains the recovery will start in the first quarter of 2017.

“We have data showing clearly that the economy is entering a recovery path,” Meirelles told reporters in Davos, where he attends the annual meeting of the World Economic Forum. Growth will gain speed in the second half of the year, when the recovery will become even more visible, he said.

To read about the challenges facing Brazil’s Temer, click here

Latin America Lagging

In Latin America, Mexico suffered an even bigger cut to its growth outlook than Brazil. The IMF reduced Mexico’s GDP outlook by 0.6 percentage points to 1.7 percent, citing higher borrowing costs and uncertainty stemming from its northern neighbor following the election of Donald Trump.

Latin America and the Caribbean was subject to the largest downward revision of any region, down 0.4 percentage points to 1.2 percent.

“The growth downgrade reflects to an important extent more muted expectations of short-term recovery in Argentina and Brazil following weaker than-expected growth outturns in the second half of 2016, tighter financial conditions and increased headwinds from U.S.-related uncertainty in Mexico, and continued deterioration in Venezuela,” the IMF said in the report.

Analysts surveyed by Bloomberg forecast Mexico will grow 1.7 percent this year as Venezuela contracts for the fourth straight year, by 2.4 percent. The IMF will release its full World Economic Outlook report in April.

— With assistance by Katia Porzecanski

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