BRASILIA, Feb 27 (Reuters) - Bank of America Merrill Lynch on Thursday cut its 2020 Brazilian economic growth outlook to 1.9%, the first major bank to go below the 2% threshold many observers say is highly sensitive for President Jair Bolsonaro’s administration.
Economy Minister Paulo Guedes and other officials have consistently said the government’s right-wing economic reforms and record low interest rates will deliver growth this year comfortably above 2%, with Guedes confident of 2.5%.
But several economic indicators have been weaker than expected recently, and Brazilian media have reported that Bolsonaro is becoming increasingly frustrated with Guedes the more it looks like 2% growth this year might be in jeopardy.
Citing the impact of the coronavirus outbreak, several banks have cut their 2020 GDP forecasts to just above 2%. Economists at BAML on Thursday went a step further and cut their outlook for the second time this month, to 1.9% from 2.2%.
“Following a new round of downward growth revisions in China, we once again cut our Brazil GDP growth forecast for this year to 1.9% from 2.2%,” BAML economists David Beker and Ana Madeira wrote in a research note published on Thursday.
“The coronavirus outbreak should negatively impact exports. Given the expected bigger impact from the virus and ongoing mixed economic activity indicators in Brazil, we shave our forecast by another 30bp (basis points),” they added.
They also lowered their 2020 inflation forecast to 3.2% from 3.6%, and next year’s forecast to 3.6% from 3.7%, both moving further below the central bank’s inflation targets of 4.00% for 2020 and 3.75% for 2021.
The government’s official 2020 growth forecast remains 2.4%, although Treasury Secretary Mansueto Almeida told Reuters in an interview earlier this month that may be revised.
A few private sector forecasters, like UK-based research firm Capital Economics, are more gloomy, predicting 1.5% growth this year. The average from the central bank’s latest ‘FOCUS’ survey of economists this week edged down to 2.2% from 2.23%. (Reporting by Jamie McGeever; Editing by Steve Orlofsky)