IMF Sees Brazil Growth Rebounding in 2018 on Easing Uncertainty

  • Fund keeps Mexico growth outlook at 2 percent for next year
  • Argentina seen rebounding this year from 2016 contraction

The International Monetary Fund nudged up its 2018 growth outlook for Brazil as fading political uncertainty, easing monetary policy and progress on the government’s economic reform agenda help foster a gradual recovery.

Brazil will grow 1.7 percent next year, compared with a January forecast of 1.5 percent, the IMF said in its World Economic Outlook published Tuesday. The fund is more pessimistic than all but four of 31 analysts surveyed by Bloomberg, whose median forecast is 2.2 percent.

President Michel Temer’s administration is working to pull Latin America’s largest economy from its worst recession in a century. Policy makers have increased the pace of interest rate cuts for the second time this year amid record-high unemployment and slowing inflation. The administration has won investor praise for efforts to shore up Brazil’s finances and boost private sector activity. While this year’s growth estimates remain tepid, confidence has risen as the budget deficit has dropped, the currency has gained and inflation has plunged.

"Brazil’s macroeconomic prospects hinge on the implementation of ambitious structural economic and fiscal reforms," the IMF said in the report.

Brazil’s central bank is expected to lower the key rate to 8.5 percent from the current 11.25 percent by year-end and hold it at that level throughout 2018. That would be the biggest easing cycle since policy makers cut the Selic to 11.25 percent from 19.75 percent in the two years through September 2007. Still, the IMF forecasts economic growth of just 0.2 percent in 2017 after two years of recession.

Temer’s next big proposal -- an overhaul of Brazil’s pension system -- has drawn criticism from opposition lawmakers and labor unions, and will likely prove more difficult to pass than the spending cap approved last year.

The IMF’s growth forecasts for Mexico, the region’s largest economy after Brazil, were unchanged from January at 1.7 percent for this year and 2 percent for 2018. The fund expects Argentina’s economy to grow 2.2 percent this year, rebounding from a 2.3 percent contraction in 2016, while Venezuela will shrink 7.4 percent this year and 4.1 percent in 2018.

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