Bloomberg News

Brazil Analysts Cut 2014 GDP Call Below 1% for First Time

July 21, 2014

Brazil economists cut their 2014 growth forecast for the eighth consecutive week, as low confidence and above-target inflation curb demand in the world’s second-largest emerging market.

Brazil’s economy will expand 0.97 percent this year, compared with the previous week’s forecast of 1.05 percent, according to the July 18 central bank survey of about 100 analysts published today. That was the lowest estimate since the central bank started publishing the data.

President Dilma Rousseff’s administration is trying to combat the fastest inflation in a year without further crimping demand as she campaigns for re-election in October. The central bank last week held the key rate unchanged for the second straight meeting after having lifted the Selic by 375 basis points in the year through April. Economic growth estimates have fallen as industrial sector sentiment in July dropped for the fourth straight month, while consumer confidence hovers near a five-year low.

Bradesco (BBDC4) today cut its 2014 growth forecast to 1 percent from 1.5 percent and its 2015 estimate to 1.5 percent from 2 percent on lower confidence, according to a report. Credit Suisse (CS:US) today also cut its 2014 expansion forecast to 0.6 percent from 1.2 percent, according to a report.

“High inventory levels in the industrial sector and very low expectations among business owners for the future path of the domestic economy will likely keep GDP growth low in the second half of the year,” Credit Suisse said in its report.

Retail Sales

Policy makers facing prospects of slower growth and persistent inflation on July 16 held the benchmark rate at 11 percent for the second straight meeting. In an accompanying statement, officials said the decision was made “at this moment.”

The next day, the central bank reported that economic activity in May had contracted for the first time this year. While retail sales that month unexpectedly gained, industrial production declined on a drop in capital goods output, according to the national statistics agency.

Consumer prices in the year through mid-July jumped to 6.56 percent from 6.41 percent the month prior, according to the median estimate of 28 economists surveyed by Bloomberg. The national statistics agency will publish the official inflation data tomorrow.

Narrower Lead

Rousseff saw her election lead narrow in a Datafolha poll published on July 17 that for the first time showed she doesn’t have a lock on the runoff. Rousseff would win 44 percent of the vote in a second round against Aecio Neves, who would get 40 percent, according to the July 15-16 poll.

The gap of four percentage points falls within the margin of error of plus or minus two percentage points. The previous poll, conducted July 1-2, showed Rousseff winning the runoff with 46 percent against Neves’s 39 percent.

Inflation will end 2014 at 6.4 percent after reaching 6.6 percent in the third quarter, according to the central bank’s quarterly inflation report scenario published June 26, which considers a key rate remaining at 11 percent. Consumer prices have remained above the 4.5 percent midpoint of the central bank’s target range during Rousseff’s entire term.

The central bank on June 26 also cut its 2014 growth forecast to 1.6 percent from its previous forecast of a 2 percent expansion. Latin America’s largest economy grew 0.2 percent during the first quarter, and expanded 2.5 percent last year.

To contact the reporter on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net Harry Maurer


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