Brazil: Growth recovery is slowing down – BBVA

Analysts at the Research Department at BBVA, lowered their growth forecast for the Brazilian economy for 2019 and 2020. They expected USD/BRL to rise to 3.95 by year-end.  

Key Quotes:  

“The deceleration in the world economy, as well as slow and limited progress in the local adoption of economic reforms -particularly in the social security- will limit the economy’s capacity for growth in the coming years.”

“We expect GDP to grow 1.8% in both 2019 and 2020, slightly above the 1.1% growth recorded in each of the previous two years. Our forecast for 2019 has been adjusted downwards by 0.4 p.p., mainly due to poor incoming activity data, while the forecast for 2020 has remained constant Inflation will remain relatively under control, but will be higher going forward than in the previous two years. The progressive – albeit timid – recovery in domestic demand, the depreciation of the exchange rate and the normalization of food prices will contribute to the upward trend in domestic inflation.”

“The SELIC interest rate will remain at the current expansionary level for a long period. While weak domestic demand and the more accommodative tone of monetary policy in the US make an upward adjustment unlikely in the short term, rising inflation and fiscal risks leave little room for cuts.”

“The shift towards more accommodative policies by the main central banks has reduced financial tensions in both global and local markets. Thus, the exchange rate has neared US$3.8 and could remain close to this level for some time. But the slow progress of both the economy and reforms, as well as the deterioration in the terms of trade, support the forecast of depreciation up to 3.95 at the end of 2019 and 4.05 at the end of 2020.”