April 4, 2019 / 1:41 PM / in 16 days

Citi cuts 2019 Brazil GDP growth forecast to 1.8 percent

FILE PHOTO: The Citigroup Inc (Citi) logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren/File Photo

BRASILIA (Reuters) - Economists at Citi on Thursday cut their economic growth outlook for Brazil to 1.8 percent this year from 2.2 percent, saying that recent economic indicators suggest the economy’s tepid recovery may even be slowing further.

They also lowered their 2019 inflation outlook to 3.8 percent from 4.0 percent, and pushed back the timing of the central bank’s interest rate “normalization” process until the end of next year.

As a result, they now expect the benchmark Selic rate to be at 7.00 percent by the end of 2020, down from their previous forecast of 8.25 percent. The Selic rate has been at a record low 6.50 percent since March last year.

“After the fragile GDP expansion of 0.1 percent in 4Q 2018, the performance of activity indicators continues to disappoint,” Citi’s Brazil economists wrote in a note, specifically citing the central bank’s monthly activity indicator.

“This additional sign of an even weaker economic recovery reinforces a slower-than-expected activity outlook and triggers a downward revision of our 2019 GDP growth forecast to 1.8 percent,” they said on Thursday.

They maintained their forecast that the government’s pension reform proposals aimed at generating savings of 1.1 trillion reais ($283.91 billion) over 10 years, seen as critical to resuscitating the recovery, will be watered down to 500 billion to 750 billion reais.

Last month the central bank cut its 2019 growth outlook to 2.0 percent from 2.4 percent, and the government lowered its forecast to 2.2 percent from 2.4 percent.

Reporting by Jamie McGeever and Tatiana Bautzer; Editing by Steve Orlofsky

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