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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The federal government of Brazil delivered yet another blow to the country’s ailing economy on Thursday by announcing that it now estimates a retraction in the country’s GDP for 2016 of one percent. Earlier in the week the government had revised its retraction of the GDP of 2015 from 2.44 percent to 2.8 percent.

budget, Brazil, Levy and Barbosa announce cuts in 2016 budget, Rio de Janeiro, Brazil, Brazil News
Finance Minister, Joaquim Levy and Planning Minister, Nelson Barbosa; announce cuts in 2016 budget, photo by Valter Campanato/Agência Barsil.

Financial analysts, however, are predicting a more negative scenario. For 2015 market analysts forecast a retraction of the GDP growth by three percent and for next year a retraction of 1.43 percent.

If the numbers are confirmed for both this year and next year, this will be the first time the Brazilian GDP has ever registered a retraction for two consecutive years since the IBGE (Brazilian Statistical Bureau) began making the forecasts in 1948.

Higher than expected, President Dilma Rousseff’s economic team sent to Congress this week a budget revision which calls for a deficit of R$117.9 billion in government accounts this year.

With this latest revision of the deficit the Ministry of Finance already admits that the gross debt for Brazil’s public sector should surpass seventy percent of the GDP in 2016, going to 71.1 percent and registering 72 percent of the GDP in 2017.

The gross debt of the public sector is one of the main factors looked at by international risk rating agencies when making their recommendations as to whether or not the country should remain as investment grade.

In September Standard & Poors withdrew Brazil’s investment grade standing and in mid-October Fitch Ratings lowered Brazil’s rating from BBB to BBB-, one grade shy of junk level, while maintaining its outlook negative. Without investment grade the country runs the risk of losing major long-term international investments from companies whose corporate regulations do not allow investment in non-investment grade countries.

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