BRASILIA, June 10 (Reuters) - Brazil’s economy is expected to grow by just 1.0% this year, according to a central bank survey on Monday, as economists cut their forecasts for the 15th week in a row to a level that would be even weaker than the previous two years of subdued growth.
Reflecting the deteriorating outlook for Latin America’s largest economy, economists also cut their 2019 inflation forecasts, and lowered their 2020 outlook for growth and official interest rates.
The average forecast for gross domestic product growth this year from 75 financial institutions fell to 1.00% from 1.13% the week before, the central bank’s regular ‘FOCUS’ survey showed. That was a new low, well below the 2.5% predicted in January, and less than the 1.1% rate of expansion in 2017 and 2018.
Not only that, economists cut their 2020 GDP outlook to a new low of 2.23% from 2.50%, and their prediction of where the central bank’s benchmark Selic rate will be at the end of next year to 7.00% from 7.25% the week before.
That is the first time the FOCUS survey’s average 2020 GDP forecast has slipped below 2.50% - it was 2.80% in March - and marks an aggressive reduction in Selic forecasts for next year of 50 basis points in less than a month. The Selic rate has been anchored at an all-time low of 6.50% for over a year.
Official figures show that the economy shrank in the first quarter by 0.2%, the first contraction since 2016. Economists say that weakness is likely spill over into the remainder of 2019, and as the latest FOCUS survey shows, into next year too.
Second quarter indicators have generally been weak - notably purchasing managers indices, consumer confidence and industrial production - meaning the risk of recession is rising.
The average forecast from 115 respondents also showed that inflation is expected to end the year at 3.89%, below the central bank’s 4.25% target and marking the second consecutive reduction. Annual inflation fell in May for the first time this year to 4.66%, suggesting it may have peaked. (Reporting by Jamie McGeever Editing by Chizu Nomiyama)