Brazil Economy Could Face “Serious Difficulties” in the Second Half of the Year

By Newsfeed

RIO DE JANEIRO, BRAZIL – Brazil’s government will announce a new freeze on federal spendings later this month, special secretary to the Economy Ministry Waldery Rodrigues said on Thursday, blaming weak growth for stoking a budget deficit and hurting revenues.

The freeze will be announced by May 22, the date by which the government must publish its latest bimonthly report on revenue and spending, a recent addition to its policy framework designed to encourage stricter fiscal discipline.

“The federal government is facing a very high deficit this year of R$139 (US$35) billion. Contingency measures will be announced on May 22,” Rodrigues said.

Whatever spending is frozen or cut will be added to the R$30 billion of cuts unveiled in the last bimonthly report in March, when the government said it expected oil and tax revenues this year to slow.

Brazil’s economy has performed far worse this year than policymakers and most economists had expected, with the latest retail sales and industrial production figures suggesting the economy may have contracted in the first quarter.

Early indications from April’s data, such as a contraction in services sector activity, suggest the second quarter is not faring much better. A growing number of economists think growth this year will fail to beat last year’s moderate 1.1 percent.

Also speaking in Rio de Janeiro on Thursday, Labor and Pensions Secretary Rogerio Marinho warned that the economy faces “serious difficulties” in the second half of the year if Congress does not approve pension reform.

Because the pressure on the government’s budget is increasing so much, public investment is dangerously low, Marinho added.

Brazil’s public investment is grinding to a virtual standstill and could fall to a new record low below 0.5 percent of gross domestic product this year if the government is forced to tighten the squeeze on discretionary spending, the Treasury said last month.