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Brazil economy 'to shrink in 2016' - analysts

Market analysts in Brazil predict for the first time that the economy will contract in 2016, a year previously slated to bring improvements

Brazil economy 'to shrink in 2016' - analysts

By Ben Tavener


Analysts believe the Brazilian economy will now contract in 2016, a year previously expected to herald improvements in the country's sagging economic fortunes, a weekly survey of economists reported Monday.

The Central Bank's Focus survey of dozens of economic institutions have now forecasted for the first time that Brazil's economy will shrink by 0.15 percent, reversing previous expectations of growth in 2016.

Brazil's economy is also now expected to contract by over 2 percent in 2015, according to market analysts.

It would be the worst GDP result for Brazil in a quarter of a century, if confirmed. In 1990, the economy saw negative growth of 4.35 percent.

It is the first time the Focus survey has predicted two consecutive years of economic contraction, the Valor Economico business news portal reported.

Creeping inflation is also a source of ongoing concern, with markets predicting the extended national consumer price index, or IPCA, will reach 9.32 percent this year, a 13-year high, if proved correct.

The central bank has raised the benchmark Selic interest rate some 16 times in the past two years, in a bid to slow inflation toward the official target of 4.5 percent. Economists believe the rate will remain at its current level of 14.25 percent for the foreseeable future.

Since achieving 7.6 percent of growth in 2010, Brazil's economy has been hit hard by a combination of low commodity prices and lesser demand from China, as well as new austerity measures and now an investigation into sprawling corruption at state-owned oil giant Petrobras.

Ratings agencies have also signaled Brazil could be stripped of its investment grade in the future, after Moody's downgraded the country's government bond rating to Baa3 from Baa2. Although Moody's put Brazil's outlook on stable, the country currently sits just a notch or two above junk territory, depending on the agency.

Several global banks have named Brazil as one of the most unstable economies in the world, with American bank Morgan Stanley saying Brazil led the so-called "Fragile Five", along with Indonesia, Mexico, South Africa and Turkey, all of which are seen as suffering from unpredictable foreign investment.

Brazil and Turkey both share a degree of political uncertainty that has made foreign investors recoil. 

In Brazil, President Rousseff has faced calls to leave office, with nearly 900,000 Brazilians taking to the streets across the country on Sunday to call for her impeachment and the removal of her Workers' Party from government. Many protesters also turned out to voice their anger and concern over the state of the economy.

Brazil and Turkey are equally reeling from a slide of their respective currencies against the U.S. dollar. The Brazilian real hit a 12-year low earlier in August, and now a number of banks have predicted the dollar will buy between 3.5 and 4 reais by year's end.

Meanwhile the Turkish lira slumped Monday to a new record low against the dollar, amid fears that early elections could be triggered if a coalition government cannot be formed in the near future.

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