Analysts Say Brazil's Public Social Security Reform Will Be Postponed to 2018 and Interest Rate Fall Will Slow Down

05/26/2017 - 13h32

The excitement that moved economists and analysts is being replaced by moderation. The perception that the public Social Security reform cannot be furthered with the same agility by President Michel Temer or a potential substitute is gaining momentum - and the reform is likely to be postponed to 2018.

As expectations change, the new forecasts are that Brazil will take longer to reduce the growth of its public debt, which will prevent a sharper fall in interest rates. As a result, the country's economy is likely to grow less.

A first round of pessimistic forecasts for the G.D.P. started, although most economists are waiting for the first quarter figures - to be made public on Thursday, June 1 - to disclose their forecasts.

José Francisco de Lima Gonçalves, the head of Fator bank, says that the institution is expecting a 1% increase in the G.D.P. for 2017, but the number is likely to change and fall to near zero. Gonçalves believes that the Social Security reform will be delayed but the conclusion is likely to occur next year.

Cristiano Oliveira, the chief economist of Banco Fibra, jumped ahead and, on Monday, May 22, changed the forecast for the G.D.P. from a 1% to a 0.5% increase (and from 3.5% to 2.5% for next year).

The economic pillars did not change; however, the fact that the public Social Security reform will be concluded in the first quarter of 2018 is likely to make the benchmark interest rate (Selic) fall more slowly, which will make interest paid by final consumers to decline at a slower pace as well.

Although the G.D.P. growth in 2017 expected by Tendências is small (0.3%), it is likely to suffer further adjustments, says economist Silvio Campos Neto.

The country's biggest banks have not disclosed their reports yet. Santander, however, has already signaled what could be its next steps as it admits that the G.D.P. may fall.

For the time being, the bank's economic team has not changed its forecast for main indicators - one of the reasons to do so is because it is already among the most conservative estimates.

Translated by THOMAS MUELLO

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