Brazil cuts 2017 growth forecast as recession lingers

Pedestrians walk across Paulista Avenue in Sao Paulo's financial district, April 8, 2014. Sao Paulo is one of the host cities for the 2014 World Cup in Brazil. REUTERS/Paulo Whitaker

BRASILIA (Reuters) - Brazil’s government lowered its forecast for economic growth in 2017 to 1.0 percent from 1.6 percent, echoing recent market pessimism as the country struggles to exit its worst recession in at least eight decades.

Brazil’s economy is expected to return to growth in the first quarter of 2017, Fabio Kanczuk, the finance ministry’s secretary of economic policy, told reporters on Monday.

The government also changed its forecast for this year’s economic contraction to 3.5 percent from 3.0 percent.

Brazil’s two-year-long recession deepened in the third quarter, central bank data showed last week, leaving 12 million people unemployed.

Economists in a weekly central bank survey lowered their forecasts for 2017 growth to 1.0 percent, the bank said on Monday. The International Monetary Fund expects the Brazilian economy to grow just 0.5 pct next year.

Official estimates for tax revenues in 2017 remained unchanged despite the cut in growth forecasts. Kanczuk said the government remained committed to its budget target for next year.

According to Ricardo Volpe, an economic adviser to the lower house of Congress, a 0.6 point reduction in growth could reduce revenues by at least 3.5 billion reais ($1.04 billion) next year, but a precise estimate will depend on other factors such as inflation and job growth.

The government forecasts inflation at 4.7 percent at the end of 2017, down from 4.8 percent. The exchange rate is expected to end 2017 at 3.6 reais per dollar, compared with a previous forecast of 3.5 per dollar.

Reporting by Alonso Soto; Writing by Silvio Cascione; Editing by Diane Craft and Jeffrey Benkoe