MercoPress. South Atlantic News Agency

Economic forecasts indicate Brazil heading for recession

Brazil’s economy could shrink for the first time in 17 years in 2009 as the global recession prompts companies to cut output and staffing according to a Central Bank survey of 100 economists and released Monday.

The median estimate from the one hundred economists was a contraction of 0.19% this year, down from zero growth a week ago. This coincides with reports from banks such as Morgan Stanley, Deutsche Bank AG and BNP Paribas which also forecast that Latinamerica’s largest economy (1.5 trillion US dollars) will shrink this year.

Brazilian industrial production and demand weakened in the first three months of the year after a record contraction in the last quarter of 2008 as the full impact of the world’s largest recession since World War II reached the shores of Mercosur main economy.

Brazil’s gross domestic product will shrink 4.5% in 2009, Morgan Stanley said in a March 16 research report. BNP Paribas on March 10 forecast Brazil’s GDP would shrink 1.5% this year, while Deutsche Bank today forecast a 1% contraction.

In a bid to counter recession, the Central Bank is forecasted to lower the benchmark interest rate Selic to a record low 9.25% by year- end. On March 11 the bank cut the overnight rate by 1.5 percentage points, the biggest reduction in five years, to 11.25% percent, matching the record low in place from September 2007 through April 2008.

Falling demand has helped rein in consumer prices. Analysts expect consumer prices to rise 4.26% in 2009, less than the midpoint of Brazil’s inflation target, according to the median forecast in the central bank survey.

The central bank on March 30 indicated that lower interest rates coupled with rising household income may spark a rebound by year-end. “Recent results show a relative recovery, in the margin of the Brazilian economy,” the bank said.

Central bank President Henrique Meirelles on March 25 said that the Brazilian economy should beat forecasts that policy makers view as “pessimistic”. The bank’s policy makers said income gains were sustaining retail sales while revising their 2009 GDP forecast to 1.2%, down from a forecast of 3.2% made in December.