‘Very Depressed Scenario’ for Brazil
World Economy

‘Very Depressed Scenario’ for Brazil

Brazil’s economy will contract more than previously forecast and is heading for the deepest recession since at least 1901 as economic activity and confidence sink amid a political crisis, a survey of analysts showed.
Latin America’s largest economy will shrink 2.95% this year, according to the weekly central bank poll of about 100 economists, versus a prior estimate of a 2.81% contraction. Analysts lowered their 2016 growth forecast for 13 straight weeks and estimate the economy contracted 3.71% last year, Bloomberg reported.
Brazil’s policymakers are struggling to control the fastest inflation in 12 years without further hamstringing a weak economy. Finance Minister Nelson Barbosa, who took the job in December, has faced renewed pressure to moderate austerity proposals aimed at bolstering public accounts and avoiding further credit downgrades. Impeachment proceedings and an expanding corruption scandal have also been hindering approval of economic policies in Congress.“We’re now taking into account a very depressed scenario,” Flavio Serrano, senior economist at Haitong in Sao Paulo, said by phone.
Central bank director Altamir Lopes said on Dec. 23 the institution will adopt necessary policies to bring inflation to its 4.5% target in 2017. Less than a week later, the head of President Dilma Rousseff’s Workers’ Party, Rui Falcao, said Brazil should refrain from cutting investments and consider raising its inflation target to avoid higher borrowing costs.
Consumer confidence as measured by the Getulio Vargas Foundation in December reached a record low. Business confidence as measured by the National Industry Confederation fell throughout most of last year, rebounding slightly from a record low in October.
The last time Brazil had back-to-back years of recession was 1930 and 1931, and has never had one as deep as that forecast for 2015 and 2016 combined, according to data from national economic research institute IPEA that dates back to 1901.
Brazil’s poor economic conditions and high prices are hurting demand among electricity consumers across the nation, energy-research agency EPE says.
In November, electricity consumption dropped 4.4% versus the year-ago period. Industrial customers used 8.9% less, while residential customers cut their consumption by 2.2%.
In the first 11 months of the year, electricity consumption in Brazil fell 2.1%. The country’s economy contracted at a projected level of 3.71%, according to economists surveyed by the central bank.

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