Economic outlook, analysis and forecasts

Brazil - Economic forecast summary (June 2015)

 

Economic growth is projected to contract this year, but a slow recovery is expected to unfold gradually from the end of 2015, driven initially by strengthening exports, which will be boosted by the depreciation of the real.


Fiscal performance has deteriorated and inflation has risen significantly. Consequently, rebuilding confidence in macroeconomic policies remains the priority. Continuous vigilance to ensure a return of inflation to the target is warranted. Recent government commitments for fiscal adjustment are welcome and also lay the grounds for stronger growth. More specifically, recent adjustments of social benefits, lower support to public banks and cost-covering electricity prices are correcting past distortions and are important initiatives on the supply side. The planned launch of a new round of concessions, especially in transportation, is fundamental to addressing bottlenecks and promoting higher growth. The recent decision to restart trade negotiations with the EU and the start of a wide-ranging free-trade agreement with Mexico are welcome. Progress on a comprehensive reform of indirect taxes, lowering trade barriers and reducing administrative burdens could spur competition and accelerate the recovery significantly. The commitment to inclusive growth, including through further improvements in education and well-targeted social transfers, should be maintained.


At less than 20% of GDP, Brazil’s level of investment has traditionally been low by international and Latin American standards. This partly reflects Brazil’s relatively low domestic saving. Over the past 4 years, however, investment has been trending down due to policy uncertainties and lack of confidence. These factors have recently been compounded by corruption allegations surrounding the national oil company, Petrobras. Business investment is projected to pick up in 2016 as activity accelerates and some of the previous risks are being addressed.

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