Over the long-term, Brazil will only experience modest levels of growth as structural headwinds limit any quick economic solutions to the challenges faced from falling global commodity prices. Growth will only return to the economy following two consecutive years in recession in 2015 and 2016.
Widespread public unrest, sweeping corruption scandals and deepening polarisation will keep political risk elevated over the coming quarters, weighing on investor sentiment and contributing to extreme uncertainty in terms of policy direction. Over a multiyear timeframe, the Brazilian electorate will demand progress on promised reforms, including higher-quality public services and greater government transparency.
Major Forecast Changes
We expect Banco Central do Brasil will enact 100 basis points of rate cuts in 2017, as decelerating inflation and strengthening central bank credibility allow it to shift its focus to supporting economic activity. Nonetheless, our interest rate forecasts are above-consensus, as we believe the bank will pursue a more modest pace of rate cuts in order to ensure the stabilisation of inflation.
|e/f= BMI estimate/forecast; Source: National Sources, BMI|
|Real GDP growth, % y-o-y||0.1||-3.8||-4.0||1.0|
|Nominal GDP, USDbn||2,416.0||1,772.4||1,745.6||1,939.3|
|Consumer price inflation, % y-o-y, eop||6.4||10.7||8.1||5.2|
|Exchange rate BRL/USD, eop||2.66||3.96||3.40||3.35|
|Budget balance, % of GDP||-6.0||-10.4||-10.0||-8.9|
|Current account balance, % of GDP||-4.3||-3.3||-1.3||-1.0|
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