Brazil

Brazil - Economic forecast summary (June 2017)

 

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The economy is finally emerging from a severe and protracted recession. Still, the recovery is projected to be weak and slow. Consumer and business confidence is rising and agricultural exports started the year on a strong footing. However, unemployment is projected to decline only towards the end of this year, and then to fall only gradually. Inflation has decreased significantly, partly due to lower demand, and is projected to close the year below the 4.5% inflation target. Inequality remains high.


Lower inflation will allow for a more frontloaded monetary easing than anticipated earlier, which should support a stronger recovery of investment. Fiscal policy will need to be broadly neutral, balancing the need to ensure medium-term fiscal sustainability against the need to support a still fragile recovery. Implementing the planned pension reform is crucial to ensure the sustainability of the public finances and compliance with the recently passed expenditure rule. A sustainable pension system is part of a package to make growth more inclusive, along with a reorientation of social spending towards more effective instruments such as conditional cash transfers. Labour market rigidities and legal uncertainty would be reduced by a labour reform currently being discussed in Congress. In light of recent corruption revelations, more effective measures to fight corruption and improve governance are needed.


The economy remains fairly closed, which hampers competition and limits access to imported intermediate inputs. The recent easing of local content rules is welcome, but trade barriers remain high. Domestic policy reforms to raise competitiveness, including a major tax reform, lower administrative burdens and stronger infrastructure investment, will boost growth and ease the adjustment towards a more open economy. Strengthening vocational training would help displaced workers to find new jobs.

 

EO101 Brazil

 

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Other information

Economic Survey of Brazil (survey page)

 

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