Brazil’s Economic Growth Forecast Falls For the Eighth Consecutive Time

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Financial institutions in Brazil reduced on Monday the country’s economic growth forecast for the eighth consecutive time this year, showed the Central Bank’s weekly Focus Survey. The estimate for this year’s GDP dropped from 1.95 percent to 1.71 percent.

According to economists, however, if at the beginning of the Bolsonaro Administration the market was over-optimistic, now it is over-pessimistic.

“The market erred, during the euphoria just after the elections, by overestimating the performance of the economy,” wrote economist and former CADE (Brazil’s anti-trust agency) President, Gesner Oliveira on his blog.

“In the wake of the Bolsonaro phenomenon, many people have minimized the difficulties of implementing the reforms. At the first difficulties in Congress, the pendulum has changed. The exaggeration is now in the opposite direction,” stated Oliveira, now a partner at GO Associados.

According to Oliveira the conservative stance is understandable, but now is the time to seek out opportunities.

“Whoever backs down at this point may miss great opportunities in the financial market and in the real economy,” he states.

The Focus Survey not only showed a decline in GDP growth forecast this year, but also in 2020: from 2.58 percent to 2.50 percent. Estimates of GDP growth for 2021 and 2022 remain at 2.50 percent.

The forecast for inflation (IPCA), fell from 4.06 percent to 4.01 percent this year, below the center of the target established by the Central Bank, of 4.25 percent. The country’s benchmark interest rate (Selic) should remain at its historical low of 6.5 percent per year until the end of 2019, says the survey.

Financial market forecasts for the foreign exchange rate increased, from R$3.70/US$1 to R$3.75/US$1.

Nonetheless, many economists, like Oliveira, still believe that the window of opportunity remains ‘wide open’.

“The improving international environment, low inflation, robust external accounts and huge idle capacity, are ideal conditions for a more vigorous recovery,” concluded Oliveira.