Financial institutions forecast sharper GDP decline
The financial market's outlook for the economy this year continues to worsen, whereas the expected recovery in 2017 has been going down for five weeks on end. The forecasts are part of the Focus Market Readout report published weekly by the Central Bank (BC), based on projections from financial institutions for key economic indicators.
The forecast for this year's Gross Domestic Product (GDP) decline has been revised for the fifth consecutive time, going from 3.33% to 3.40%. The estimated GDP growth expected in 2017 dropped from 0.59% to 0.50%.
Financial institutions expect the inflation rate measured by the Broad National Consumer Price Index (IPCA) to close out this year at 7.62%. Last week, the outlook was 7.61%. The forecasts exceed the 6.5% inflation target ceiling set for 2016. For next year, the IPCA is expected to reach the target ceiling (6%). The mid-target value set for both years' inflation is 4.5%.
In a scenario of economic contraction, financial institutions expect the Central Bank's interest rate (SELIC) will remain stable this year, closing out the year at the current 14.25% per annum. The next meeting of the Central Bank's Monetary Policy Committee (COPOM) on the SELIC rate is set to take place on March 1 and 2.
For 2017, the median of expectations (discarding end values from the projections) for SELIC is 12.63% p.a. at the close of the year, compared to a previously forecast 12.75% p.a.
The SELIC rate is used for government security trading under the Special System of Settlement and Custody (SELIC) and provides a benchmark for other interest rates in the market. The Central Bank may increase it to contain inflation-driving demand—the rationale is, the higher the interest rate, the more expensive the credit (and the more saving-oriented the consumers' behavior.) Conversely, by lowering the benchmark interest rate, the Monetary Policy Committee lowers the cost of credit and encourages production and consumption, but loosens control on inflation.
The forecast for the dollar exchange rate has dropped slightly from R$4.38 to R$4.36 at the end of 2016. For 2017, the outlook remains stable with dollars at R$4.40.
Translated by Mayra Borges
Fonte: Financial institutions forecast sharper GDP decline
