By Nelson Belen, Contributing Reporter
RIO DE JANEIRO, BRAZIL – On Tuesday, November 15th, the International Monetary Fund’s (IMF) executive board released its annual report indicating that Brazil is close to exiting from a deep recession that has gripped the country for several years now. But, the IMF cautioned that the recovery will be slow and gradual and hinges on the approval of unpopular reforms, such as the spending cap legislation and social security reform.
According to the report, Brazil’s economy “has contracted markedly in 2015 and 2016,” but the country is “poised to emerge from a deep recession.” The IMF said that positive signs have begun to emerge under the Temer administration, as political uncertainty has diminished and much needed fiscal reforms are underway.
“A strong push to implement the proposed measures on the expenditure side would go a long way towards restoring policy credibility and market confidence with positive effects on investment and growth,” said the report.
The IMF added that, “Faster-than-expected progress on the reform agenda represents an upside risk that could spark a more vigorous recovery in investment, boosting foreign interest in Brazil, even as global interest rates remain low.”
But, the report also warned that the road to economic recovery will likely be a long and grueling one. The IMF report projected negative output growth of -3.3 percent for 2016, with only a slight increase of 0.5 percent in 2017.
The report also noted that Brazil’s recovery is replete with risks that could derail any positive momentum, such as the possibility that the Temer administration fails to push through fiscal reforms. The proposed spending cap bill, for example, has met with much public resistance as just last Friday (November 11th), mass demonstrations erupted across Brazil against the measure.
Other risks to Brazil’s economic recovery that the IMF highlighted included the “re-intensification of political uncertainties” such as the Lava Jato investigation, extended periods of slower growth in advanced and emerging economies, especially China, further declines in export commodity prices, and tighter financial conditions.