Recession in Brazil Might Continue Until 2016

By Lisa Flueckiger, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Analysts of the Brazilian economy have changed their forecast for 2016 for the first time to negative, assuming a contraction in GDP for the second year in a row. So far, estimates had always predicted a negative GDP for 2015, but a return to growth for the country in 2016.

In the latest Focus bulletin, published by Brazil’s Central Bank on Monday, August 17th, surveyed analysts estimated the country’s GDP to contract by 2.01 percent in 2015. This is the fifth downward correction of the estimates in a row.

If that number is confirmed, the GDP result will be the worst in 25 years for Brazil. In 1990, the GDP had decreased by 4.35 percent.

The forecast for 2016 was also corrected and now estimates a contraction of Brazil’s GDP by 0.15 percent. Last week, analysts had predicted zero growth, whereas before estimates had always been in a positive range, albeit low. At the beginning of the year the forecasts for 2016’s GDP had been a growth of 1.8 percent.

The indicators estimating inflation remained stable between this week and last, currently standing at 9.32 percent. If confirmed, this will be the worst result in thirteen years. According to the report, utilities and everyday needs like electricity, water, public transport and fuel together with the high dollar put the most pressure on prices.

The high of the U.S. dollar to the Brazilian real is assumed to continue as predictions for the rate at the end of the year rose from R$3.40 to R$3.48 for one dollar. For the end of 2016, the forecast increased from R$3.50 to R$3.60.

For 2016, inflation is assumed to reach 5.44 percent, which would be within the government’s tolerance level of the target value of 4.5 percent.

Interest rates on the other hand, are estimated to not rise any further. The benchmark interest rate, Selic, currently stands at 14.25 percent, the highest in nine years. Until the end of 2016, the rate is assumed to sink to 11.88 percent.