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December 18, 2014
Tuesday, July 22, 2014

Economists: Brazil’s GDP outlook worsens

By Filipe Pacheco
Bloomberg (*)
Brazil’s longer-term swap rates fell as economists lowered their 2014 growth estimate to below one percent for the first time, adding to speculation that policy-makers will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2021 declined 10 basis points, or 0.10 percentage point, to 11.51 percent in Sao Paulo, the lowest on a closing basis since August 12. The real rose 0.1 percent to 2.2229 per US dollar.

Economists reduced their growth forecast to 0.97 percent from 1.05 percent a week earlier, according to the median of about 100 estimates in Central Bank survey published today. Policy-makers held the target lending rate at 11 percent for a second straight meeting on July 16 after nine consecutive increases to curb accelerating inflation.

“The survey is reinforcing the idea in the market that growth is a major concern for the country,” Vladimir Caramaschi, the chief strategist at Crédit Agricole Brasil in Sao Paulo, said in a telephone interview.

The real has rallied 6.3 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg, gaining partly on speculation that President Dilma Rousseff is losing popularity as the October election approaches amid the slowest economic growth in two decades.

A Sensus poll released July 18 shows Rousseff would tie with Aécio Neves in a second round of October’s election. She would win 36.3 percent of the votes while Neves would get 36.2 percent, according to the July 12-15 survey published on the website of Istoe magazine. The poll of 2,000 people has a margin of error of plus or minus 2.2 percentage points.

Economic outlooks

Banco Bradesco said in a report that it cut its 2014 forecast for gross domestic product growth to 1 percent from 1.5 percent. Credit Suisse Group AG lowered its 2014 expansion forecast to 0.6 percent from 1.2 percent.

“High inventory levels in the industrial sector and very low expectations among business owners for the future path of the domestic economy will likely keep GDP growth low in the second half of the year,” Credit Suisse analysts wrote in a research report to clients.

To support the real and limit import price increases, Brazil sold US$198.7 million of currency swaps today and rolled over contracts worth US$346.3 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

Brazil posted a trade deficit of US$552 million in the week through July 20, according to a report published yesterday by the Trade Ministry in Brasilia.

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