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Brazil Economy to Flop for Third Year as Growth Forecast Cut

Brazil Economy to Flop for Third Year as Growth Forecast Cut

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Economists have cut their forecast for Brazil’s growth in 2019 and now expect a third year of meager economic recovery following the country’s deepest-ever recession.

Latin America’s largest economy will expand 1.24% this year, according to the median forecast from economists surveyed by the central bank, down from their 1.45% call last week and half of what they expected three months ago. It is the twelfth straight week that they reduced their estimates. Brazil grew 1.1% in both 2017 and 2018.

Brazil Economy to Flop for Third Year as Growth Forecast Cut

Analysts brimmed with optimism after Jair Bolsonaro’s election last year, expecting measures to liberalize the economy and a surge in investment that would boost growth. Instead, there’s been slow progress winning over lawmakers to secure passage of a key pension reform, which has kept investors in wait-and-see mode. Unemployment is stubbornly in the double digits, crimping consumption despite record-low interest rates.

The latest cut in Brazil’s growth forecast comes after a key indicator of economic activity shrank 0.68% in the first quarter and the central bank also warned that the economy likely contracted in the period.

Weak economic activity has been accompanied by subdued inflation, which is seen ending 2019 at 4.07%. According to data the Getulio Vargas Foundation released Monday, the second preview of Brazil’s broadest inflation measure for May slowed more than economists forecast. Economists also pared their forecast for the benchmark Selic rate, which they expect to remain at an all-time low of 6.5% this year. They now see it rising to 7.25% by end-2020, from 7.5% previously.

To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Walter Brandimarte

©2019 Bloomberg L.P.