Tags: Economists | Brazil | Growth | Expectation

Economists Cut Brazil Growth Expectations

Monday, 17 February 2014 09:05 AM

Economists covering Brazil cut their growth forecasts for both 2014 and 2015 to the lowest levels ever, as above-target inflation undermines demand in the world’s second-largest emerging market.

Brazil’s gross domestic product will expand 1.79 percent this year and 2.10 percent next year, down from the previous week’s forecast of 1.90 percent and 2.20 percent, respectively, according to the Feb. 14 central bank survey of about 100 analysts published Monday.

Latin America’s biggest economy is showing signs of slower growth in the face of persistent inflation. Economic activity shrank in December as both retail sales and industrial production contracted. While policy makers have lifted the key rate by 325 basis points since April, central bank director Carlos Hamilton said on Feb. 13 consumer prices will remain elevated due to factors including a weaker real.

Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, fell four basis points, or 0.04 percentage point, to 11.28 percent at 9:03 local time. The real was little changed at 2.3878 per U.S. dollar and is down 17.5 percent in the past 12 months.

Brazil’s industrial output in December contracted 3.5 percent from the previous month, as capital goods production plunged 11.6 percent, the national statistics agency said on Feb. 4. Retail sales in the same month declined for the first time in 10 months on a drop in purchases from auto parts to furniture and appliances.

Benchmark Rate

Brazil’s central bank on Jan. 15 lifted the benchmark Selic by 50 basis points for the sixth straight meeting following a quarter-point boost in April. In the minutes to their Jan. 14-15 monetary policy meeting, central bankers said it was “appropriate” to maintain the current pace of interest rate increases.

Policy makers will raise borrowing costs to 11 percent at their Feb. 25-26 meeting, according to the median forecast of the five most accurate analysts in the central bank survey. Those economists were previously split on whether officials would maintain the pace of tightening or slow to a quarter- point.

Monthly consumer price increases in January as measured by the IPCA index decelerated to 0.55 percent from 0.92 percent in December, less than every forecast from 48 analysts surveyed by Bloomberg. While annual inflation slowed to 5.59 percent, consumer prices have remained above the central bank’s 4.5 percent target for over three years.

Slower Increase

Brazil’s slower price increase in January was due in part to temporary factors, and inflation that month remained widespread, the central bank’s Hamilton said on Feb. 13. The country’s monetary policy takes into account a horizon of one to two years, Hamilton added.

Economists in the central bank survey increased their 2013 inflation expectations to 5.93 percent from 5.89 percent last week. Analysts maintained their 2015 consumer price forecast at 5.70 percent.

Brazil’s economy probably expanded 2.3 percent in 2013, Hamilton said on Feb. 13, reiterating the bank’s official estimate. The national statistics agency will publish the official growth figure on Feb. 27.

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Economists covering Brazil cut their growth forecasts for both 2014 and 2015, as above-target inflation undermines demand in the world's second-largest emerging market.
Monday, 17 February 2014 09:05 AM
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