Brazil Economic Outlook. Third quarter 2019

Brazil: recovery prospects remain in place, despite weaker growth at the beginning of 2019

Key points

• Key points:
• Persistent trade tensions and the slowdown in world growth will negatively impact the Brazilian economy. However, a new round of policy stimulus, in particular by the Fed and the ECB, may create some room for maneuver to the country.
• The forecast for GDP growth in 2019 is revised downwards from 1.8% to 0.9. The growing pessimism on short-term activity is mainly explained by the significant downside surprise in growth figures in the first half of the year, which is related both to a more negative global environment and a strong deterioration in confidence.
• The increased pessimism on GDP growth does not extend beyond 2019. The recent signs reinforce the prospects for approval of the social security reform in the second half of the year, which is expected to create the conditions for a gradual recovery of confidence and then of the economy. Thus, the 2020 growth forecast of 1.8% is maintained unchanged, and has now an upward bias.
• An even more accommodative monetary policy by the Fed as well as the good news regarding the approval of the social security reforms and the associated reduction of fiscal risk, in a context where inflation remains under control, will allow the announcement of new expansive measures. In particular, the central bank will likely take interest rates from 6.5% to 5.5%, from September (or even before) till the beginning of 2020.

Authors

Geographies

Topics

Tags