Economic Outlook Gloomy but Government Says No Quick Fix

07/22/2014 - 10h04

With inflation high, output low and confidence of both the business community and consumers falling, some economists are already predicting that Brazil will grow less than 1% this year.

This is the second time expectations for GDP have been reduced in less than 60 days amongst the consultants and banks interviewed by Folha.

According to the most optimistic predictions, Brazil will grow 1.4% this year, while the worst-case scenario would see growth of just 0.5%.

In 2013, the economy grew 2.5%. This is also the government's target for this year, though it is likely to be revised.

The reassessment of the economic outlook was confirmed in the Focus Bulletin (Boletim Focus), issued by the Central Bank on Monday.

For the eighth consecutive week, analysts reduced their estimates for economic growth, to an average of 0.97%. Just a week ago, that stood at 1.05%.

Publication of weaker production indicators has also contributed to the pessimistic climate. Industrial production has fallen for the third month in a row.

In the automotive sector, production was down by 23%, a likely consequence of the holidays for Brazil's World Cup matches.

Prospects for the second semester have also deteriorated with a fall in confidence amongst the business community.

In July, confidence fell to its lowest point in the last 15 years. Uncertainty surrounding the presidential elections later this year has also not helped.

Moreover, the current situation could be worse, were it not for government welfare programs and increases in salaries, which have prevented a fall in income.

"NO QUICK FIX"

The economic situation continues to worry the Rousseff administration, but the assessment is that there is 'no quick fix' that can be applied to stimulate growth.

Advisors say that it would be pointless to create more stimulus programs, as the lack of investment and consumption is the result of uncertainty surrounding the identity of the next president.

The Planalto believes that the country will return to normal after the elections, as there will no longer be "concrete motive" for pessimism regarding the country's economic situation.

According to the government, the country is currently at a moment of "negative expectations", which has affected the confidence of consumers and the business community.

However, this does not mean that the year has been "lost".

Rousseff's team believe that the third trimester will also be slow, but that the economy will begin to pick up in the final trimester of the year, after the election results.

Translated by TOM GATEHOUSE

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