Home Business Due Brumadinho Tragedy, Central Bank Reduces Brazil’s Growth Forecast in 2019

Due Brumadinho Tragedy, Central Bank Reduces Brazil’s Growth Forecast in 2019

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Central Bank (BC) on Thursday reduced its projection of economic growth in 2019 to 2%, compared to 2.4% expected in December, with a strong revision of industry in the face of the consequences of the January tragedy at Vale’s mine in Brumadinho.

In its Quarterly Inflation Report, the Central Bank explained that the revision was due to the “growth in the fourth quarter of 2018 in a smaller magnitude than expected, to the unfolding of the tragedy in Brumadinho on the production of the mining industry, the reductions in forecasts for the crop, and, to a lesser extent, the moderation in the economic recovery.

The new forecast is in line with projections from the financial market, which also expects an expansion of 2% of Gross Domestic Product (GDP), compared to 2.55% in December, before Jair Bolsonaro’s arrival in power.

Since then, prospects have worsened, primarily with the disappointing growth out turns of 2018, when Brazil grew just 1.1%, the same as in 2017, failing to make the economy really take off after a two-year recession in 2015 and 2016.

Add to this a reduction in crop forecasts, which led the Central Bank to cut in half – from 2% to 1% – the projection of agricultural GDP growth.

The projection of industrial GDP fell from 2.9% to 1.8%, largely due to the reduction in extractive activities following the rupture of a mining tailings dam at Brumadinho, Minas Gerais, which left more than 300 died and disappeared and forced Vale to suspend production in several mines.

In recent weeks, political tensions have grown within the majority of the government, throwing yet another bucket of cold water into the enthusiasm of financial markets – especially about the possibility of rapid welfare reform.

The Ibovespa index of the Sao Paulo Stock Exchange rose by more than 13% in 2019, but only in March, it registered a decrease of 3%, which reduced its total expansion to 4.5%.

The dollar is quoted at around R $ 4 – a devaluation of the Brazilian currency by 4% in March.

As for inflation, the BC has estimated that it is “at appropriate and comfortable levels”.

Market expectations are for a price rise of 3.895% this year, below the center of the BC’s target of 4.25%, with a tolerance of 1.5 points up or down.

In this scenario of weak growth and low inflation, several analysts are evaluating the possibility of the BC reducing – sooner or later – its base interest rate, the Selic, which is at 6.5% a year ago, to encourage investments and the credit.