Analysts expect Brazil's economy to contract by 2.81% in 2016 after contracting by 3.70% this year, marking the biggest drop in economic output in 25 years, the Central Bank said on Monday. Economists are forecasting an inflation rate of 10.72% this year, the highest rate in 13 years, and 6.86% in 2016. The estimates seem to be supported by the latest numbers referred to the budget deficit.
The GDP and inflation forecasts come from the Boletin Focus, a weekly Central Bank survey of analysts from about 100 private financial institutions on the state of the national economy. The government started using the survey in preparing its own forecasts this year.
If the forecasts turn out to be accurate, Brazil will go through two consecutive years of negative GDP growth for the first time since 1948. Analysts maintained their GDP forecast for this year unchanged from last week, while they revised the projected contraction for 2016 upward from 2.80% to 2.81%.
Brazil, in a technical recession with GDP contracting for three consecutive quarters, has had its sovereign debt lowered to junk status by Standard & Poor's and Fitch Ratings in recent months. Those downgrades have occurred even though analysts note that Brazil's foreign currency reserves are far in excess of its international liabilities.
Latin America's largest economy growth has been hampered by spending cuts implemented by President Dilma Rousseff's administration to reduce the budget deficit and control inflation. Joaquim Levy resigned as Brazil's finance minister on Dec. 18 amid the struggling economy and a push by some in Congress to impeach Rousseff.
His replacement - Nelson Barbosa, who had been heading up the Planning Ministry - was critical of some of the austerity measures implemented by his predecessor.
In related news and confirming the dire prospects the National Treasury revealed that excluding debt service, expenses at ministries, the central bank and social security topped revenue by 21.279 billion reais (US$5.47 billion) last month, up from a 12.27 billion reais deficit in October. The deficit was the largest since the beginning of the data series in 1997.
So far this year, the central government amassed a primary deficit, or the difference between revenue and expenses before interest payments on the debt, of 54.3 billion reais, the biggest year-to-date figure ever. The primary budget balance is scrutinized by investors and credit rating agencies as a gauge of creditworthiness.
The primary deficit could widen considerably as the government prepares to repay this week around 57 billion reais in debts with state-controlled banks and state workers' pension funds.
Interim Treasury Secretary Otavio Ladeira said the government will use mostly resources from an account it holds at the central bank to repay the debt. The government will only issue 1.5 billion reais in notes to repay Banco do Brasil SA the country's largest lender by assets.