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The International Monetary Fund slashed its 2014 economic growth forecast for Brazil by a full percentage point Tuesday, to 0.3 percent, blaming weak investment and a consumer funk, AFP reports.
The International Monetary Fund slashed its 2014 economic growth forecast for Brazil by a full percentage point Tuesday, to 0.3 percent, blaming weak investment and a consumer funk, AFP reports.
Brazil, Latin America's biggest economy and the world's seventh-largest, entered recession in the first half of the year, a painful reversal of the rapid growth it posted in the 2000s.
"Weak competitiveness, low business confidence, and tighter financial conditions (with interest rate hikes through April 2014) have constrained investment, and the ongoing moderation in employment and credit growth has been weighing on consumption," the IMF said.
Inflation has also reached the government target maximum of 6.3 percent, as reported by the IMF and the Central Bank of Brazil.
The IMF said the situation was being exacerbated by political uncertainty created ahead of a presidential run-off poll on October 26 between leftist incumbent Dilma Rousseff, who topped Sunday's first-round vote, and business favorite Aecio Neves.
"A moderate pick-up in activity is expected for 2015, with growth rising to 1.4 percent as the political uncertainty surrounding this year's presidential election dissipates," it said.
Between the BRICS countries (Brazil, Russia, India, China, and South Africa), only Russia, with 0.2 percent, is currently performing worse than the Latin American giant.
Investors accuse Rousseff, whose Workers' Party has now been in power for 12 years, of excessive interventionism in the economy.
Markets reacted excitedly to Neves reaching the second-round vote.
Sao Paulo's Bovespa stock index closed nearly five percent higher Monday and added another 0.5 percent Tuesday.
The IMF lowered its forecast across Latin America and the Caribbean, predicting 1.3 percent growth this year, down from a July forecast of 2.0 percent.
Next year the region is predicted to grow 2.2 percent, down from 2.6 percent in July.
Latin American commodity exporters could be weakened by shocks in external demand, on lower investment from key client China, as well as by “an abrupt rise in US interest rates.”
“Many economies struggle to find new engines of sustainable growth in an environment of stagnant commodity prices and more binding supply bottlenecks,” revealing the need for structural reform to boost investment and productivity.
The weaker outlook is being caused by "external factors, given weaker-than-expected export performance amid deteriorating terms of trade," the IMF said.
In Mexico, the region's second-largest economy, the growth forecast was steady at 2.4 percent this year, rising to 3.5 percent for 2015.
Despite "weak external demand and construction activity," the IMF said Mexican growth would pick up from 2015 due to landmark energy reforms and recovery in the United States.
The IMF warned that in Argentina, the region's third-largest economy, output was being choked by "macroeconomic and policy imbalances" fueling inflation, economic contraction and a weakening peso.
In Venezuela, the IMF decried "severe policy distortions that have led to widespread shortages, a collapse in growth, and inflation now exceeding 60 percent,"
