Economic Indicators in Brazil Continue to Deteriorate

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Annual inflation forecasts in Brazil for 2015 by financial analysts have increased for the ninth consecutive time, from 8.46 percent to 8.79 percent this week, according to the latest Focus Report released by the Central Bank. The significant increase from the previous report was due to the latest IPCA (inflation rate index) for May, which registered continuous inflation, this time increasing by 0.74 percent. For 2016 the forecast continues to be an annual inflation of 5.50 percent.

The Central Bank has already admitted that inflation will most likely surpass the target ceiling of 6.5 percent, but forecasts the annual rate, at 7.9 percent, lower than the 100 financial institutions surveyed for the Focus Report.

To try to limit the inflation rise, the Central Bank and the Ministry of Finance have announced several measures such as reducing subsidies, increasing bank reserve requirements and increasing the Selic (benchmark interest rates), which at the beginning of the month increased for the sixth consecutive time, to 13.75 percent per year. The financial institutions surveyed for the Focus Report, estimated the Selic to reach 14.00 percent by the end of the year.

According to the survey analysts also see deterioration in the country’s GDP and industrial production. The latest Focus Report also increased the contraction expected for the Brazilian economy (the GDP) this year, from 1.30 percent to 1.35 percent.

Industrial production is likely to suffer significantly, with analysts calling for a 3.20 percent decline in production in 2015. Although next year economists believe the country will have some relief, economic indicators are not exceptionally positive: economic growth will not reach one percent, being forecast at 0.9 percent, while industrial production will come out of negative territory and grow by approximately 1.6 percent.