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Brazil’s GDP growth estimate in 2017 jumped from 0.5 pc to 1.1 per cent

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The Ministry of Finance updated the growth forecast for the Gross Domestic Product (GDP) in 2017 from 0.5 percent to 1.1 percent. – For 2018, the new official projection is 3 percent growth, compared to 2 percent of the previous forecast.

The OECD view:

After falling for eight consecutive quarters, growth has finally resumed in Brazil. Initially driven by agriculture, the recovery now appears increasingly broad-based. Growth is expected to strengthen further, although confidence will remain sensitive to political developments.

Inflation has fallen to below the central bank’s target, raising real incomes and allowing lower interest rates, which will support a recovery of investment. Credit to the corporate sector is still falling, but unemployment has already started to decline.

Low inflation justifies an easy monetary policy stance over the projection period, with real interest rates at a long-time low, which will support investment. The current neutral fiscal policy stance will have to become even more prudent in 2019 to ensure medium-term fiscal sustainability, given high and rising public debt. The planned pension reform is crucial to ensure compliance with the expenditure rule and promote fiscal sustainability.

Re-orienting social spending towards conditional cash transfers while reducing ineffective industrial subsidies will make growth more inclusive and reduce high inequality. Phasing out loan subsidies from public banks will improve the allocation of capital and raise productivity. Reducing high trade barriers would strengthen competition and innovation, and lower the cost of intermediate inputs.

While corporate sector liabilities relative to GDP have risen towards the average of emerging market economies, banks are well capitalised and expected to withstand possible stress resulting from risks related to corporate debt, especially as activity is picking up. The deep and prolonged recession has been a significant real-world stress test for banks, and has not exposed weaknesses in financial institutions.