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Brazil growth forecast below one percent

In a blow to President Dilma Rousseff, market forecasts in Brazil predict economic growth of less than one percent in 2014 for the first time.

Brazil growth forecast below one percent

By Ben Tavener


For the first time ever the Brazilian economy is predicted to grow by less than one percent in the coming year, the Central Bank has reported.

Monday’s Focus Bulletin revealed that analysts believe the economy will grow by 0.97 percent this year. It was the eighth successive week that experts reduced their Gross Domestic Product growth forecasts.

The figure, based on a survey of around 100 Brazilian economists, is the worst estimate since the Central Bank began publishing the data. Last week the figure stood at 1.05 percent.

The news is yet another blow to the economic credentials of President Dilma Rousseff’s government and is also likely to hit confidence in Latin America's largest economy, already hampered by low confidence and concerns over above-target inflation.

The report said the revised growth forecast comes amid a reduction in projections for industrial output, which the market believes will contract by 1.15 percent this year. 

Growth forecasts for the world's second-largest emerging economy remained stable for 2015, at 1.5 percent, but the prediction is markedly lower than the 2.5 percent growth achieved in 2013 and far from the 7.5 percent growth seen in 2010.

Last week, the National Confederation of Industry announced that its confidence index had hit its lowest point since January 1999.

It also follows worse-than-expected figures for the labor market: in June only 25,300 new jobs were created – the worst result since June 1998, according to Brazil's General Registry of Employed and Unemployed. 

However, analysts predicted a slight improvement in the annual rate of inflation for 2014, down from 6.48 to 6.44 percent. Despite this, inflation is well above the Central Bank's target of 4.5 percent, and just inside its two percent tolerance band.

Rousseff's government is in a desperate battle to keep the economy healthy as the October 5 general election approaches, when Rousseff will be seeking a second term.

Many economists say a major overhaul of fiscal policy is required to get the country back to decent growth, but this is unlikely before the election as a drastic change in employment or inflation would be politically disastrous.

Although Rousseff remains the front runner for the first round of voting, a runoff will be necessary. The Datafolha survey of 5,377 eligible voters produced a technical tie for the second round, meaning that, for the first time, the incumbent president is no longer guaranteed victory.

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