December 10, 2012 / 11:22 AM / in 5 years

Economists slash Brazil economic growth forecasts

SAO PAULO (Reuters) - Economists slashed forecasts for Brazil’s economic expansion for this and next year for the fourth straight week, a central bank survey showed on Monday.

The world’s sixth-largest economy, one of the fastest growing emerging countries only two years ago, is now expected to expand just 1.03 percent this year, less than the International Monetary Fund forecasts for Japan and the United States and about the same as Germany.

The central bank survey of about 100 financial institutions also showed a downward revision in the median of their 2013 growth forecasts to 3.50 percent, from 3.70 percent previously.

Brazil nearly fell into recession one year ago as local manufacturers struggled with an overvalued currency, high labor costs and a weak global economy. Chronically low investment levels have also reduced Brazil’s potential growth.

The economy is slowly recovering, though at a slower pace than previously expected, after President Dilma Rousseff’s government offered several tax reductions for targeted industries. The central bank also cut interest rates 10 straight times to a record low of 7.25 percent.

Many banks such as Barclays, Itau BBA and Banco Santander Brasil last week slashed their forecasts for interest rates in 2013, expecting another round of government stimulus to prop up the economy. The median market forecast for the benchmark Selic rate, however, stood at 7.25 percent at end-2013.

The median forecast for inflation in 2012 was revised up after a surprise jump in November reported last week. Consumer prices should rise 5.58 percent in 2012, up from a forecast of 5.43 percent in the prior week, according to the survey.

The government targets inflation at 4.5 percent, with a tolerance margin of 2 percentage points in each direction. Inflation accelerated more than expected in November after transportation and electricity prices spiked.

Reporting by Silvio Cascione Editing by W Simon

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