World Economy

Brazil Heading for Another Contraction

Brazil Heading for Another Contraction  Brazil Heading for Another Contraction

Private-sector analysts continued to forecast a 2.99% drop in Brazil’s gross domestic product in 2016, but they raised their inflation outlook to 7% at year’s end, the country’s Central Bank said.

The GDP and inflation figures come from the Boletin Focus, a weekly Central Bank survey of analysts from about 100 private financial institutions in Brazil on the state of the national economy, Fox News reported.

Brazil could be headed for a second straight year of economic contraction. The analysts surveyed by the monetary authority said the South American giant’s economy shrank at its fastest clip of the last 25 years in 2015–3.71%.

Private sector economists predicted that Brazil’s economy would start recovering in 2017 with a 1% rise in GDP, up slightly from their 0.86% growth forecast in the previous survey.

Analysts, meanwhile, were more pessimistic about the inflation rate for this year, with their forecast rising from 6.93% to 7%.

That outlook is outside the government’s target range of between 2.5% and 6.5% but still lower than Brazil’s 10.67% inflation rate in 2015, the highest level in 13 years.

The analysts also raised their inflation forecast for 2017 from 5.25% last week to 5.4%.

Brazil, in a technical recession with GDP contracting for three consecutive quarters, has had its sovereign debt lowered to junk status by Standard & Poor’s and Fitch Ratings.

Those downgrades have occurred even though analysts note that Brazil’s foreign currency reserves are far in excess of its international liabilities.

The South American giant’s economic growth has been hampered by spending cuts implemented by President Dilma Rousseff’s administration to reduce the budget deficit and control inflation.