Market predicts Brazil 2014 growth below 1%

Anadolu Agency

SÃO PAULO – Market analysts in Brazil have predicted, for the first time, that the country’s economy will expand by less than 1% in 2014, according to a Central Bank report published on Monday.

Analysts now believe the Brazilian economy will grow by 0.97% this year, according to the bank’s most recent Focus Bulletin, after analysts cut their GDP (gross domestic product) growth forecasts for an eighth consecutive week.

The figures, based on a survey of around 100 Brazilian economists, are the worst estimate recorded since the Central Bank began publishing the data. Last week the figure stood at 1.05%.

The news is yet another blow to the economic credentials of the government of President Dilma Rousseff, who is seeking re-election in October, and is also likely to hit confidence in Latin America’s largest economy, already hampered by low confidence and concerns over above-target inflation.

The report says that the revised growth forecast comes amid a reduction in projections for industrial output, which the market believes will contract by 1.15% this year.

Growth forecasts for the world’s second-largest emerging economy remained stable for 2015, at 1.5%, but the prediction is markedly lower than the level of growth achieved in 2013, of 2.5%, and a far cry from the 7.5% growth seen in 2010.

Fewer jobs, but lower inflation

The news comes after the National Confederation of Industry announced last week that its Confidence Index had hit its lowest point since January 1999.

It also follows worse-than-expected figures for the labour market: in June only 25,300 new jobs were created — the worst result since June 1998, according to Brazil’s General Registry of Employed and Unemployed.

Brazil’s Ministry of Labour has now reduced its outlook for job creation this year from 1.5 million to 1.1 million.

However, analysts predicted a slight improvement in the country’s annualized rate of inflation for 2014, down from 6.48% to 6.44%, after food prices gave the market a positive surprise; the price of soya, cotton, corn and wheat all fell over the past month.

Despite the slight improvement, inflation is well above the Central Bank’s target of 4.5%, and just inside its tolerance band of two percent either side of that target. The report showed inflation will reach 6.6 percent later this year before slowing slightly to the predicted 2014 rate.

Blow to Rousseff campaign

Rousseff’s government is in a desperate battle to keep new jobs coming and curb inflation, reducing pressure on voters’ wallets, without further stymieing demand on the economy as the October general election approaches.

Rousseff is seeking a second term in office. Given inflation has been above-target for the entirety of her first term, the president’s main self-styled “pro-business” election rivals, particularly Aécio Neves of the Brazilian Social Democracy Party (PSDB), will attempt to cash in on her economic record.

Last week the Central Bank held the benchmark SELIC interest rate at 11% after a long cycle of increases in a bid to counter inflation.

Many economists both in Brazil and overseas say a major overhaul of fiscal policy is required to get the country back to decent growth, but this will certainly not happen before the elections, as any drastic resultant change in employment or inflation would be politically disastrous.

A recent poll of voter intentions have showed that, although Rousseff remains the front runner for the first round of voting by a comfortable although shrinking margin, a runoff will be necessary. Crucially, the Datafolha survey of nearly 5,400 eligible voters gave a technical tie for that second round, meaning that, for the first time, the incumbent president is no longer guaranteed victory.

Despite some commentators’ predictions that Brazil’s defeat at the World Cup would have a signficiant impact on the October vote, political experts last week told the Anadolu Agency that the state of the economy would far outweigh any concerns over Brazil’s performance on the pitch.

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