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Banks forecasting two years of economic contraction for Brazil

Monday, July 27th 2015 - 06:45 UTC
Full article 8 comments
Last Friday, Credit Suisse put out a note revising his forecast for Brazilian GDP this year to -2.4% from an already bleak -1.8%. Last Friday, Credit Suisse put out a note revising his forecast for Brazilian GDP this year to -2.4% from an already bleak -1.8%.

Banks in Brazil are now forecasting economic contraction in 2016 and if this proves correct it will be first time Latin America's largest economy shrinks two years running since the Great Depression.

 Last Friday, Credit Suisse’s economist Nelson Teixeira put out a note revising his forecast for Brazilian GDP this year to -2.4% from an already bleak -1.8%.

Brazilian central bank’s weekly Focus survey points out that the country's biggest banks are all bearish. Only Banco Santander Brasil is bullish, by a hole basis point. They expect a 1.9% contraction this year and a 0.1% gain in GDP next year.

If things continue in Brasilia the way they are with tax cut reversals and political crises, they are sure to lower Brazilian expectations as the latest FGV consumers' confidence index revealed.

Meanwhile, Brazil’s two biggest private banks are expecting a prolonged recession. Itau is forecasting a 2.2% contraction this year and 0.2% contraction in 2016. Its rival, Bradesco, sees the Brazilian economy dropping 1.8% this year and flat-lining next year.

However the situation remains volatile but if the political crisis worsens, such as a separation between the ruling Workers’ Party and its chief political ally, the Democratic Movement Party, or PMDB, or blockbuster legal discovery regarding the Petrobras scandal that implicates president Dilma Rousseff or her predecessor Luiz Inacio Lula da Silva — then sentiment will plunge and even political impeachment should not be discarded.

Likewise a weak commodities' environment does not bode well for Brazil’s commodity exporters. This means less dollars flowing into the country from that source. A stronger dollar globally also threatens the local currency, the real, which is now closer to R$3.5 than it was to R$3.0 only a few weeks ago. Nevertheless a cheaper Real and Brazilian costs should help boost exports.

Brazil is currently the worst performing of the big BRIC markets over the last year.

Teixeira at Credit Suisse told the Estado de São Paulo newspaper on Friday that third and fourth quarters are likely to contract, which led him to revise his 2016 forecast lower. Next year is starting off on the wrong foot for Brazil.

Categories: Economy, Politics, Brazil.

Top Comments

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  • Conqueror

    This is nice. It's always good to watch idiots crash. Let's watch for Brasiliero explaining how failing China and even more failing, sanctioned Russia will rush to Brazil's aid. Except they won't. China might suggest Brazil sells them more of itself. When will it be Chinzil? Remember that Russia is down to the level of barter unless it can do an invasion or start a war. Watch for pictures where you can see Dilma's neck. Look for the creases where her head is swivelling through 360 degrees to try to find a way out. There'll be a lot more murders.

    Jul 27th, 2015 - 10:54 am 0
  • Skip

    Brazil doesn't export a great deal for the size of its economy so the weaker real won't help that much.

    And considering what just happened to China's stockmarket today, I don't expect a great deal of help coming from that direction.

    In other news, the other supposed country beholden to China for its prosperity through raw materials..... Australia.... unemployment may have peaked and non-mining growth has taken off thanks to our lower dollar.

    Time for the engineers and other professionals in Brazil to think about migrating down under.

    Jul 27th, 2015 - 12:28 pm 0
  • ChrisR

    What a bullish expectation: only two years?

    I will be very surprised at that and remember what I said when DumbAss started fucking with Mr. Market and telling the banks to remove their restrictions on loaning to the deadbeats: well here we are folks and it's not going to go away in just two years.

    Jul 27th, 2015 - 12:47 pm 0
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