World Economy

Brazil Not Functioning Properly

Brazil Not Functioning Properly Brazil Not Functioning Properly

With the IMF likely to cut its growth forecasts for Brazil on April 13, bankers and economists are starting to worry that the country will be stuck in recession for another two years at least.

The Brazilian economy is breaking down, a leading financier warned Saturday amid growing speculation that Latin America’s largest country will be hit by further cuts to its growth outlook by leading international forecasters next week, Emerging Markets reported.

“The economy is not functioning properly,” said Ramon Aracena, chief Latin America economist at the Institute of International Finance. “And there is chaos in the political system, with spill-overs in the economic sphere.”

Daniel Titelman, head of the economic development division of the United Nations’ Economic Commission on Latin America and the Caribbean, added that Brazil was facing “hard times”.

One private sector banker said the gloomy feeling towards the Brazilian economy looked set to extend until the resolution of the current political crisis, meaning it could last until after the next general elections, which are scheduled for October 2018.

The International Monetary Fund looks certain to cut its Brazil growth forecast again for this year when it publishes its World Economic Outlook on Tuesday. ECLAC is poised to follow next week. The IIF forecasts a drop in GDP of 4.5% this year and a small rebound of 0.5% of GDP in 2017. “It could be another year of recession if the political situation does not improve,” Aracena said.

   Extreme Case

Titelman said Brazil had the highest public debt ratio and the highest fiscal deficit in the region. “There is some work to do to stabilize variables and regain trust,” he said.

Moody’s, the ratings agency, has described Brazil as an “extreme case” in Latin America due to both its very high debt to GDP ratio and its very low debt affordability, as a result of a combination of weak revenues and high interest rates.

“It is very difficult to make a consolidation effort when you have a contracting economy,” said Mauro Leos, senior credit officer for Latin America in the sovereign risk unit of Moody’s.

He said Congress was “too distracted with impeachment”—a reference to the current political process against President Dilma Rousseff. Moody’s described attempts by Finance Minister Nelson Barbosa to launch a much-needed pension reform as “unrealistic”.

Yet there may be a glimmer of hope. “Some financial indicators have been improving. And 2017 may not be as bad as some expect,” said Octavio de Barros, chief economist at Bradesco, a large Brazilian private sector bank.