The deep recession is set to continue in 2016 and in 2017 against the backdrop of high political uncertainty and ongoing corruption revelations that are undermining consumer and business confidence, leading to a continuous contraction in domestic demand. As the economy shrinks, unemployment is set to rise further. Inflation will gradually return into the target range as the effects of administrative price increases and past currency depreciation wear off and economic slack widens.
Deep political divisions have reduced the chances for any noticeable momentum on policy reforms in the near term and gross government debt is continuing to rise. Improvements in confidence will depend on the authorities’ ability to implement a significant fiscal adjustment, including steps to ensure the sustainability of the pension system, and a new wave of structural reforms. While remaining restrictive, monetary policy will loosen slightly as inflation declines.
Raising productivity will depend on reforms to boost competition, lower trade barriers and administrative burdens and simplify indirect taxes. Given that demographics will provide much less support than they have in the past, stronger productivity will be key for solid economic growth in the medium term.
Economic Survey of Brazil (survey page)
The Economic Consequences of Brexit: A Taxing Decision (main web page with paper)
Structural reforms in a difficult time (blog + paper)
Public spending efficiency in the OECD (blog + paper)