Political uncertainty may weigh on Brazil growth

Wednesday, January 3, 2018

Brazil's economy is likely to expand further in 2018 due to the combination of rebounding private consumption and strengthening exports, although the uncertain political scenario may limit growth.

"Although largely due to cyclical factors, the labor market has improved more rapidly than we anticipated. Unemployment fell to 12.0% in November, from a high of 13.7% in March, and the formal economy added jobs in all but three months of the year through November," said BMI Research.

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"Inflation is at multi-year lows and likely to remain modest over the coming quarters, supporting household purchasing power. Meanwhile, lower interest rates and deleveraging will lower debt burden."

The research firm upwardly revised its estimates for Brazil's GDP growth this year to 2% from 1.7%. In 2017, the country's economy expanded at a projected level of 0.8%, it said.

Nevertheless, BMI Research highlighted that country's October presidential election will impact economic performance.

"Uncertainty surrounding the upcoming general election will weigh on fixed asset investment, which underpins our below-consensus view. Although we expect investment will turn positive in 2018, this will largely reflect a bottoming out after four consecutive years of contraction," it said.

"More importantly, President Michel Temer is increasingly unlikely to pass substantial reforms before the general election campaign begins in earnest, and the field of candidates is far from certain. A strong pro-reform candidate has yet to emerge, with early polls being dominated by candidates campaigning against reforms," it added.