Brazil Reduces Growth Forecast in Half to 0.9%

São Paulo at night For the third quarter in a row, the economic staff has reduced the official estimate for the growth of the Brazilian economy this year. According to a report released every two months by the Ministry of Planning, the increase in the country’s gross domestic product (GDP) dropped from 1.8% to 0.9%. 

The forecast for the inflation, in turn, was kept at 6.2%, and, in spite of the high value of the dollar, the report predicts the average exchange rate will close out 2014 at R$ 2.29, with no difference from the previous report.

Although the study was published by Brazil’s Ministry of Planning, the predictions were made by the Secretariat for Economic Policy of the Finance Ministry. The parameters are used to foresee the government’s revenues and expenses in the coming months.

In spite of the reduced forecast, the official projections for the Brazilian economy are still more optimistic than those for the stock market.

According to the latest Focus report – a survey with financial institutions released on a weekly basis by the Central Bank – market observers believe the GDP will grow a mere 0.3% in 2014, and that the official inflation rate will close out the year at 5.3%.

Revised Down

The projection of financial institutions for economic growth in Brazil in 2014 has been on a downward run for 17 straight weeks. In a poll conducted by the Central Bank, the growth estimate for the Gross Domestic Product (GDP), i.e. the sum of all goods and services produced in the country, has been notched down from 0.33% to 0.30%. The projection for 2015 has dropped from 1.04% to 1.01%.

The expected rate of decline for industrial production this year has been revised from 1.98% to 1.94%. Next year, output is expected to be up 1.6%, as against 1.5% as per last week’s forecast. The projection for the benchmark interest rate, aka Selic, has been kept at 11% per annum by the end of 2014.

The projection for the end of 2015 has moved from 11.50% to 11.25% per annum. The dollar price projection has been revised from R$ 2.30 to R$ 2.34, by the end of this year, and kept at R$ 2.45 by the end of 2015.

Sovereign Fund

Brazil’s Finance Minister, Guido Mantega, regards as legitimate the use of the Sovereign Fund of Brazil for covering expenses incurred by the Union in 2014. The frustrated predictions about an increase in tax collection led the government to withdraw US$ 1.46 billion from the fund in an attempt to prevent new cuts in non-mandatory expenses.

“The Sovereign Fund is a primary savings account that we created in 2008. There’s nothing more legitimate than using this money we’ve been saving to cover part of the expenses,” said the minister. The decision to resort to the fund can be found in the Assessment Report on Revenues and Expenses, which is published every two months by the Ministry of Planning and provides the guidelines for the execution of the General Budget of the Union.

The report further reveals that the economic staff has reduced the official estimate for the growth in the country’s gross domestic product – from 1.8% to 0.9%. As regards inflation, the prediction was kept at 6.2%. The study also foresees that, in spite of the high value of the dollar, the average exchange rate will close out 2014 at R$ 2.29.

The Sovereign Fund was formed with the excess from the primary surplus – the resources saved in order to pay the interest of the public debt – in 2008. These savings served as a reserve in case the government needed to close its public accounts. At the end of 2012, the National Treasury had withdrawn US$ 5 billion to reach the goal of the primary surplus for that year.

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