(Adds context, official comment)
By Jamie McGeever and Marcela Ayres
BRASILIA, April 22 (Reuters) - Economists continue to slash their forecasts for Brazilian economic growth this year, according to a closely watched survey published on Monday, intensifying the spotlight on a key Congressional vote on pension reform later in the week.
The central bank’s weekly FOCUS survey of nearly 100 financial institutions showed the median forecast for 2019 growth fell sharply in the latest week to 1.71 percent from 1.95 percent a week before.
The survey was released a day before the Congressional Constitutional and Legal Affairs Committee (CCJ) is scheduled to vote on the constitutionality of the government’s signature social security reform bill.
The vote was supposed to take place last week but was delayed after lawmakers, including government allies, demanded more time to discuss some of the bill’s more controversial elements.
Labor and Pensions Secretary Rogerio Marinho said on Monday there will be some “minor changes” to the bill but insisted they will not dilute the bill’s targeted savings of 1.1 trillion reais ($280 billion) over the next decade, although he did not give any details on where the changes might be made.
Analysts say pension reform is critical to restoring public finances to health, unleashing huge investment into Brazil and reviving the economy. The latest FOCUS survey highlighted just how critical it is.
A drop of almost one quarter of a percentage point in the space of a week is big, and mirrors the 0.27 percentage point fall to 2.01 percent on March 18 from 2.28 percent, just as political infighting on social security reform began to heat up.
At the start of 2019, the median FOCUS forecast for GDP growth this year was 2.55 percent.
“It’s really disappointing, and strengthens the view that interest rates will eventually be cut,” said Cleber Aliesse, a derivatives broker at brokerage H.Commcor in Sao Paulo. “The only thing supporting the rates curve and (official) interest rates is uncertainty over fiscal reforms.”
With the growth outlook darkening by the week, the need for meaningful fiscal reform is growing.
Economists at research consultancy TS Lombard on Monday said sub-par indicators released so far this year suggest the economy may even have contracted in the first quarter, with uncertainty over reforms putting company investment plans on hold.
“In recent months, the lack of progress on structural reforms has eroded confidence for consumers, industry, retail and services,” Wilson Ferrarezi, the firm’s Brazil economist, wrote a note to clients.
$1 = 3.93 reais Reporting by Jamie McGeever and Marcela Ayres; editing by Chizu Nomiyama and Susan Thomas