Economists See Greater Retraction in Brazil’s GDP in 2016

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Despite some positive economic indicators, economists are forecasting an even lower economic growth for 2016 than previously estimated, concludes Brazil’s Central Bank in its weekly Focus Bulletin. According to the report, economists surveyed increased their 2016 GDP retraction from 3.16 percent to 3.20 percent.

Economists however maintained their inflation forecast at 7.34 percent, still above the 6.5 percent inflation target determined by the Central Bank. The numbers for 2017, however, are more optimistic.

According to the latest Focus Bulletin report GDP growth forecasts increased next year from 1.23 percent to 1.30 percent, while inflation at the end of the year should remain within the target range, at 5.12 percent. The target ceiling for 2017 decreased from this year’s 6.5 percent to six percent.

Economists surveyed in the report also expect the benchmark interest rate (Selic) this year to decline from the current 14.25 percent per year to 13.75 percent by December of 2016. For 2017, the Selic, although lower, is expected to remain in the two-digit realm, closing the year at eleven percent.

Although the economic situation in Brazil is not expected to significantly improve in this last semester, the foreign exchange rate should remain somewhat stable. Differently from the volatility and depreciation seen at the beginning of the year, the Brazilian real should close the year at R$3.26/US$1 economists now say.

The local currency, however, will not be able to avoid an appreciation in the U.S. dollar, next year, with the foreign exchange rate forecast to close 2017 at R$3.45/US$1.