Brazil's economy to improve, but crisis to persist in 2017, economist says
Expectations that Brazil's economy can recover are improving, but the country will not overcome the crisis in 2017. The economy is expected to shrink 3.4% in 2016, and next year will begin with a 0.5% decrease in the Gross Domestic Product (GDP). These were some of the thoughts presented by economist Silvia Matos at a seminar on the outlook for 2017 sponsored by the Brazilian Institute of Economics at Fundação Getúlio Vargas (FGV/IBRE).
Silvia Matos is a technical coordinator for IBRE's Macro Bulletin, a monthly study that provides statistics, forecasts, and analyses on the Brazilian economy. “I don't think we could overcome this recession so soon—it's been a long, deep, recession similar to the one we had in the 80's” she said.
According to her, there has been a slow process of “disinflation”, so the Central Bank has taken a cautious stance to avoid mistakes as it adjusts the economy. “In a time of economic transition, we don't know how far this disinflation goes, so the Central Bank is being extremely cautious. Interest rates are not likely to fall as much as expected by the market. Therefore, the economy can't recover at the same pace,” she said.
In her opinion, fiscal policy is the most critical aspect of the Brazilian economy, and the trajectory of gross debt is unsustainable. She noted there is a reform agenda aimed at reviving investment and stabilizing the rules. Moreover, it's crucial that the government indicate to foreign investors that the administration that succeeds it in 2019 will continue the economic model, because some “changes to the constitution are hard to approve, and once approved, they're hard to roll back. Pensions are a tough battleground, but if the government succeeds, this may create a better scenario than the one we are expecting,” she said.
Domestic demand
A faster pace of economic growth would require a robust growth not only of the industrial sector, but also of services, yet the current scenario is one of decreasing government spending and household consumption. Matos explained that the foreign sector will not contribute toward this “supergrowth”, and boosting domestic demand would require “the pipeline of credit, which still seems to be blocked.”
For 2018, the expected GDP growth is still low at around 2%, but unemployment rates may improve. “The unemployment rate in the second half of 2017 may begin to decline, it's nothing extraordinary, but it's still a positive sign, and it could continue into 2018. But we'll also face high unemployment rates, because there's room [for employers] to extend working hours [for their existing staff] before they consider hiring new staff,” she said.
The economist said that even with the difficulties caused by the effects of Operation Car Wash corruption investigation on the economy, there is no choice for the country but conduct reforms. “When the economic situation improves in some way, politicians are seen positively,” she said. “Let's try to fix this economy, because the crisis is no good for anyone. We all lose.”
Translated by Mayra Borges
Fonte: Brazil's economy to improve, but crisis to persist in 2017, economist says
