Experts expect weak economic growth in Brazil for 2017

Economists heard by Agência Brasil have indicated that the outlook for Brazil's economy in 2017 is slightly better than in 2016, but there will be many difficulties on the way to reviving production and consumption.

According to them, the political situation is one of the factors keeping the economy from recovering quickly, and the country will need to overcome its political issues before it can grow again.

According to Virene Matesco, Economics Professor at Fundação Getúlio Vargas (FGV), the Gross Domestic Product (GDP) will grow by no more than 0.5% by 2017. Only when consumers and business investors regain confidence, she said, will the economy begin to fully recover.

“Economic recovery in 2017 will essentially depend on two factors—overcoming the political crisis and succeeding in passing measures that show the government's commitment to public finance. Only then will the country be able to start putting itself back together,” she said. “Brazil's Congress is like this tractor that will haul a stuck car—ie Brazil—back out of the mud—except the tractor is broken.”

According to Matesco, even the approval of a pension reform will only serve as an indication for the market and investors. This is because both the revision of the pensions and retirement rules and a Constitution amendment that has set a cap on government spending for the next 20 years will only impact the government's finance in the medium and long run. “The deficits will continue to persist, so there's a possibility that the government will increase taxes to raise money.”

André Perfeito, chief economist at Brazil's Gradual investment brokerage firm, agrees about the economic implications of Brazilian politics. “In my opinion, this crisis is political in essence. So will investors still be willing to put their money on Brazil when they see what's going on here?” he wonders.

Perfeito is more pessimistic in his forecast for Brazil's economic growth next year: 0.2%. He thinks the government could achieve better results by widening the primary deficit in 2017—estimated at $42.512 billion—to stimulate the economy. “Increasing spending would be fine—as long as it was all done transparently and for a limited time—but there's no political room for that, not least because of the past administrations' mistakes with this type of policy,” he explained.

He also blamed part of the difficulties for economic recovery on international factors, especially after the US Federal Reserve hinted it may raise interest in the world's biggest economy as many as three times in 2017 to contain the effects of tax cuts and government spending increase intended by the next US President Donald Trump.

Industry

Productive sector organisations are not very optimistic in their economic forecast for 2017 either. The National Confederation of Industry (CNI) expects the GDP will grow 0.5% and industry will expand 1.3%, with investment likely to increase 2.3% in 2017 after falling 11.2% this year.

According to CNI Executive Manager Flávio Castelo Branco, idle time at industries with stock pile-ups, and the financial troubles of families and businesses pose challenges for growth resumption. In his opinion, only when the indebtedness level decreases will consumption and production be able to respond.

“When businesses create jobs, they spin the wheels of the economy, with increases in investment, wages, consumption, and production,” Castelo Branco explained during the announcement of the CNI's economic outlook for 2017 on December 13. In his view, the pension and labour reforms should be rolled out as soon as possible, and the government's financial imbalances mitigated, to allow the country to grow again.

In the end of November, the Ministry of Finance cut its GDP growth projection for 2017 from 1.6% to 1%. The government's forecast is still more optimistic than the market's. In the fourth week of December, financial institutions projected the GDP would expand 0.58% next year, according to the Focus Market Readout, a weekly Central Bank survey of market analysts' economic forecasts.

Translated by Mayra Borges