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Brazilian economy to contract 2% this year, and inflation 9% predicts French bank

Monday, April 6th 2015 - 16:56 UTC
Full article 8 comments
Brazil's GDP inched up 0.1% in 2014, and private-sector economists surveyed weekly by the Central Bank are forecasting a contraction of 1% this year. Brazil's GDP inched up 0.1% in 2014, and private-sector economists surveyed weekly by the Central Bank are forecasting a contraction of 1% this year.

BNP Paribas said in Sao Paulo that it expects Brazil's gross domestic product to shrink 2% this year, or double the contraction the French financial services company had projected one quarter ago.

 The bank said in its quarterly Global Markets report that Brazilian economic authorities, including the Finance Ministry and the Central Bank, “are having difficulty getting their numbers in order.”

Brazil's GDP inched up 0.1% in 2014, and private-sector economists surveyed weekly by the Central Bank are forecasting a contraction of 1% this year.

Separately, BNP Paribas revised its inflation forecast upward, from 8% to 9%, or well above Brazil's official target range of between 2.5% and 6.5%.

External pressure - including a slowdown in growth in China, the biggest buyer of Brazilian raw materials - and domestic economic woes will force the South American giant to ramp up measures to get inflation under control and put its fiscal house in order, the report said.

The country's federal, state and local governments ended 2014 with a cumulative primary budget deficit (before interest payments) equivalent to 12.51 billion dollars, putting public finances in the red for the first time since the current reporting methodology was adopted in 2001.

To combat the country's deficit problems, the government unveiled a series of austerity measures, including spending cuts, the paring back of tax breaks, tighter credit, and a reduction in labor benefits.

“Brazilian growth will be hard hit. Fiscal tightening will weigh on the government,” the bank said, referring to a scenario that could adversely affect consumption and spur higher unemployment, restrict access to credit, and weaken investment.

The French bank said ”the inevitable adjustment (end to tax breaks) is now fueling inflation,“ and predicted that Brazil's Central Bank will raise its benchmark Selic rate to between 13% and 14%, up from a current level of 12.75%.

”Higher inflation will require a new increase in interest rates,” although those rates could be lowered if there are signs of an economic recovery in 2016, it concluded.

Categories: Economy, Brazil.

Top Comments

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  • Brasileiro

    What assures me that the French BNP Paribas is doing sensible analysis this time? BNP Paribas missed the last three annual forecasts for Brazil. BNP predicted that in 2012, 2013 and 2014 Brazil was in recession with inflation above the target ceiling.
    These guys talk too much and say nothing.

    Look, this speculation business has already broken the West. Failed expectations undermine the entire chain of productive investment and generates distrust of institutional investors, and in my view, generates illicit profits for speculators.

    It needed better regulate the financial market. This only occurs through National States strong and committed to the common good.

    But it seems that they all have “stuck tail.” It seems that all these funds make donations to politicians and political parties in their countries.

    The Western crisis is caused mainly due to the mismatch between the productive sector and the speculative sector. A lot of money is linked to speculation or even tax havens. The production is the only way to generate wealth and satisfy human needs.

    Speculation is a game of chance where many have “cards up his sleeve.”

    Apr 07th, 2015 - 10:59 am 0
  • yankeeboy

    If they don't stop the direct payments to the slum dwellers and the huge subsidies the economy will end up worse than the worst forecasts.
    It is so very hard to have high inflation and recession.
    It takes a special kind of idiot to concoct that dangerous cocktail.
    It is very painful to fix.

    Let's see what happens, my guess is the Marxist Monkeys will revert to type and try and print their way out of this.
    Time will tell

    Apr 07th, 2015 - 12:51 pm 0
  • Tik Tok

    It does not take a rocket scientist to figure out that Brazil could contract 2% this year, it could be more. Every week economists have revised down their figures for GDP growth, now it's negative 1.01% for the year. It's very easy to see this downward course hitting negative 2% or more by the end of the year. Therefore fair enough call by BNP Paribas with all the crap that's happening in Brazil. Geewhiz who would believe what the bank says ahead of the intellectual Brasileiro #1.

    Apr 07th, 2015 - 06:11 pm 0
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