SÃO PAULO — Brazil’s economy will shrink by 1 percent in 2015, down markedly on previous forecasts, according to a report by the IMF released on Tuesday.
“Latin America’s outlook will continue to weaken due to lower commodity prices. Brazil’s outlook is also affected by a drought, tighter macroeconomic policies, and weak private sector sentiment,” the report said.
The IMF analysis also cited the risk of water and energy rationing and repercussions from a sprawling corruption scandal at state-run oil giant Petrobras, Brazil’s largest company, as complicating the country’s economic outlook.
It also predicted annual inflation for Brazil at 7.8 percent, far higher than the 6.5 percent upper limit of the country’s official inflation target.
The global lender had predicted in its January report that Brazil, the largest economy in the Latin America and Caribbean region, would see modest growth of 0.3 percent.
Across the region, only Venezuela was given a worse prediction, where contraction of 7 percent is expected. Argentina is also set to see its GDP shrink by 0.3 percent.
Positive predictions for smaller regional economies Bolivia and Paraguay, which are set to expand by 4.3 and 4 percent, respectively, were not enough to save South America’s overall negative outlook. The continent is set to slide 0.2 percent this year, the report found.
Overall, the IMF said the global economy would see “moderate” growth of 3.5 percent this year, picking up in 2016 to around 3.8 percent.
Emerging economies, it said, would see average growth of 4.3 percent, whereas advanced economies would expand 2.4 percent on average.
Brazil was joined by Russia, set to contract by 3.8 percent, as another major world economy that is predicted to see its final 2015 growth figures in negative territory.
China’s economy is expected to advance 6.8 percent this year and India is forecast to see growth of 7.5 percent.
The news came as Brazil’s official statistics agency, the IBGE, released retail sales figures for February on Tuesday, showing the steepest monthly decline since 2003. Sales fell 3.1 percent compared to February 2014.
High inflation and interest rates have poured cold water on consumer confidence, economists say.