January 26, 2015 / 12:01 PM / 4 years ago

UPDATE 1-Brazil's 2015 economic outlook darkens as fiscal measures bite

(Wraps consumer confidence, Focus survey, adds context)

SAO PAULO, Jan 26 (Reuters) - The outlook for Brazil’s economic health this year has worsened considerably, according to data released on Monday, as analysts weigh the impact of painful fiscal measures and consumers become increasingly worried about the future.

Economists sharply raised their forecasts for Brazil’s 2015 inflation rate while slashing their economic growth estimate for the year, a weekly central bank poll showed on Monday.

The median forecast of about 100 market economists shows 2015 ending with inflation at 6.99 percent, up from 6.53 percent a month ago. Brazil’s government targets a rate of 4.5 percent, with a tolerance margin of two percentage points.

Meanwhile, the median estimate for economic growth this year dropped to 0.13 percent from 0.38 percent in the previous week’s survey and 0.55 percent a month earlier.

To ward off a potential credit downgrade, the government has pledged to cut spending, which should weigh heavily on economic growth in 2015.

The central bank raised its benchmark Selic interest rate for the third straight time last week and left the door open for another 50 basis points at its next meeting.

Still, any slowing of inflation should be limited due to a string of recently announced tax increases and steep hikes in electricity and transportation prices.

Weak consumption is one of the most evident signs of Brazil’s recent malaise. Household spending, which boomed during most of the past decade as millions of Brazilians joined the middle class, has stagnated over the past year as the broader economy ground to a halt.

Consumer confidence plunged in January to its lowest since the data series began in September 2005, according to a private survey also released on Monday.

The Getulio Vargas Foundation, or FGV, said its confidence index fell to 89.8 in January from 108.9 a year ago.

The index had remained above 100 for nearly six years until dropping to 95.3 in November.

The results “reflect increased worry about the job market and inflation,” said FGV economist Tabi Sant. (Reporting by Asher Levine; Editing by Toby Chopra and Lisa Von Ahn)

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