IMF Reduces Brazil’s Growth Projection to 1.4 Percent in 2018

By Jay Forte, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Despite the strong showing for Jair Bolsonaro and his pro-market reform party in Sunday’s general election in Brazil, the economy is expected to grow less in 2018 and next year, according to updated estimates of the International Monetary Fund’s (IMF) World Economic Outlook report released today (October 9th).

The estimate for the expansion of the Gross Domestic Product (GDP), the sum of all the goods and services produced in the country, was 1.4 percent this year, a reduction of 0.4 percentage point in relation to July.

According to the IMF, the Brazilian economy will grow in these two years due to the recovery of private demand. In the report, the fund cites the effect of the truckers’ strike, with a reduction in the projection for GDP this year compared to that estimated in April.

As reported by a government news agency, the report says, “The projected growth for 2018 is lower than in the April report by 0.9 percentage point due to disruptions caused by the truckers strike across the country and tighter external financial conditions that are a source of risk for the prospects.”

For William Jackson, Chief Emerging Markets Economist, at Capital Economics, “Local markets will undoubtedly welcome this outcome [of Bolsonaro becoming president]. Bolsonaro’s economic platform is very market friendly – his manifesto includes pension reform, full independence for the central bank, privatisations and a reduction in the size of the state.”

However Jackson also writes, “It’s not clear that the support Bolsonaro is building extends to painful measures to cut spending. And some of the more difficult changes, such as to pension provision, will require a highly unstable coalition of at least 11 parties to change the constitution. As these hurdles become more apparent, the Bolsonaro boost may start to falter.”

For the IMF, inflation is expected to reach 3.7 percent this year and 4.2 percent in 2019. The fund assesses that food price inflation will recover after a decline caused by an exceptional harvest in 2017.

In the report, the IMF adds that fiscal consolidation is a priority in Brazil. “Social security reform is essential to guarantee sustainability and fairness, since social security expenditures are high and growing, and pensions are unduly generous for some segments of the population,” the document said.