2015 has pretty much been written off as a year to forget for Brazil – which is expected to suffer its worst contraction in 25 years.
But the much hoped for rebound in 2016 is getting increasingly elusive too as the country’s economic malaise proves more protracted and deeper than previously expected.
The latest survey of 100 economists published by the Brazilian central bank on Monday showed that Brazil is expected to record no growth in 2016.
That’s down from expectations of a 0.2 per cent expansion last week and a complete reversal of the 1.8 per cent growth forecast at the start of the year.
That Brazil’s economy, which is dealing with the fallout from the end of the commodity supercycle, is struggling is hardly news. But the outlook for Latin America’s largest economy has deteriorated sharply in recent weeks as growing political infighting threatens to derail president Dilma Rousseff’s attempt to restore fiscal order.
The country is breaking records in all the wrong ways: The real skidded to a fresh 12-year low amid heightened volatility last week. Inflation is running at a 11-and-a-half year high. Interest rates, at 14.25 per cent, are among the highest in the world’s major economies. Meanwhile, the economy is expected to contract nearly 2 per cent this year, make it the country’s deepest recession since 1990.
Joaquim Levy, Brazil’s finance minister, was forced last month to slash the government’s target for balancing the country’s budget this year as the steep downturn crushed tax revenue.
In response, Standard & Poor’s cut its outlook on Brazil’s credit rating to negative — raising the risk that the country could lose its current BBB- investment grade rating.
While analysts have been busy taking the axe to their targets on Brazilian assets across the board, UBS went as far as to tell investors to stay away from the Brazilian real altogether.
“The current situation has led to a very high degree of uncertainty that is having negative feedback effects on an already battered economy. Significant changes in the political landscape will likely also trigger revisions of our USDBRL forecasts. For now, we think international investors are well advised to not actively engage in the BRL, given high volatility and low visibility.”