Brazil's Economic Team Reduces G.D.P. Forecast

06/22/2017 - 08h39

The extended political crisis begun by the accusations against President Michel Temer made the Brazilian government's economic team reduce the forecast for the Gross Domestic Product (G.D.P.) recovery in 2017.

In the forecasts kept in reserve for now, government ministers and advisors to the president reduced the estimated growth for this year from 0.5% to 0.4%.

The decline reflects an expectation that the recovery will slow down in the fourth quarter. The forecasts made by the economic team fell from 2.7% to 2.2% in comparison with the same period in 2016.

The government and the Ministry of Finance believe that the political crisis would lead to reduced G.D.P. estimates in the last quarter; however, the impacts were only measured recently.

The more pessimistic scenario for the fourth quarter was a consequence of the uncertainty created by the productive sector and the market as the crisis endures - with the successive facts disclosed after the plea bargains made by JBS executives.

These effects, however, are likely to play a small part in the second and third quarters.

The lower expectations for the G.D.P. this year finds resonance in the market. In the past weeks, Itaú Unibanco and Bradesco Banks reduced their estimates for 2017 to 0.3%.

Mistakes and delays in the labor and public social security reforms slowed down the recovery of investments, says the economic team. The government believes that these reforms are key to the fiscal austerity policy.

The crisis also increased the market's fear that, to recover political confidence, the government will take measures that could affect public accounts - such as the release of parliamentary amendments and the adoption of more generous financing lines.

Translated by THOMAS MUELLO

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