By Maria Lopez Conde, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Economists from a range of financial institutions have lowered their economic growth forecasts for Brazil this year, predicting a weak GDP but also lower inflation than previously expected, according to the weekly Focus survey conducted by the country’s Central Bank, which was released last Monday (July 22nd).

Guido Mantega, Brazil Minister of Finance, Rio de Janeiro, Brazil News
Guido Mantega, the Minister of Finance has reduced the growth forecast again for the Brazilian economy this year, photo by José Cruz/ABr.

Yesterday the Ministry of Finance reduced the GDP growth forecast for the Brazilian economy this year from from 3.5 percent to three percent.

However analysts lowered their expectations for GDP growth – for the tenth week in a row – from 2.31 percent to 2.28 percent. The forecast for 2014’s GDP expansion also fell from 2.80 percent to 2.60 percent.

In 2012, Brazil saw an anemic 0.9 percent GDP increase, well below expectations. At the end of 2012, Brazil’s Central Bank had predicted the total goods and services produced within the country to grow by 3.3 percent in 2013.

“Weaker growth is partly due to a slowdown in consumer spending, which has been the main driver of the economy over the past decade,” explained Neil Shearing, chief emerging markets economist at the London-based research firm, Capital Economics, adding that he expects GDP growth to hover around two percent.

“The key point is that the growth seems to be slowing for structural reasons. As such, I don’t think we’ll see a sharp rebound in 2014-2015,” Shearing said. Brazil’s GDP grew by 0.6 percent in this year’s first quarter. “Growth of 2 to 3 percent is going to become the new norm without economic reforms,” he added.

Economists See Lower Inflation, GDP in 2013, Rio de Janeiro, Brazil News
Brazil’s Central Bank chief Tombini expects lower inflation in 2013 than in 2012, photo by Valter Campanato/ABr.

Inflation is also set to cool to a slightly slower pace, according to the nearly hundred economists surveyed by the Central Bank. Their outlook on inflation for the year was revised down from 5.80 percent to 5.75 percent.

Expectations for inflation next year were also lowered slightly from 5.90 percent to 5.87, following a week of economic data showing inflation decelerating this month after the Central Bank made good on its promise to take measures to keep the country’s high inflation in check.

On July 10th, the Central Bank voted to unanimously raise the SELIC rate – the country’s benchmark interest rate – by 0.5 percent, effectively raising borrowing costs in Brazil in an effort to curb the relentless inflation currently undermining the country’s growth.

Last week, the forecast for Brazil’s key inflation rate, the Consumer Price Index (IPCA), inched down for the third week in a row, from 5.8 percent to 5.75 percent, mostly due a decrease in food prices and the reversal of fare increases on public transportation following massive protests across the country.

The FGV-run IGP-M, the General Market Price Index, which takes into account wholesale, consumer and construction prices, also showed signs of slowing down this July. The index is registering a 0.25 percent increase for the month of July, after weeks of vigorous price hikes.

For Shearing, this is due to “weakening food inflation, which increased sharply last year but has now peaked and is likely to fall further over the next six to nine months.”

In an interview with newspaper O Estado de São Paulo this week, the president of Brazil’s Central Bank, Alexandre Tombini, said Brazil will “deliver” a lower inflation rate than in 2012.

“I already said that this year we will deliver lower inflation than last year’s. It was 5.84 percent (in 2012), and this year it will be lower. Twelve months of accumulated inflation would peak in June, which, in fact, happened,” Tombini affirmed.

“After that, a decrease process would begin for two months, influenced by seasonal factors like the fall in food prices, and then the fare reductions, which was a plus in the process,” Tombini continued.

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