Brazil economists cut GDP forecast and raised inflation estimate for 2015

Brazil analysts cut their growth estimate and raised their inflation forecast for this year for a second straight week and further above the official target, a weekly central bank poll showed on Monday.

Analysts lowered their 2015 gross domestic product growth estimate to 0.40 percent from 0.50 percent the previous week. They also boosted their forecast for inflation to 6.60 percent from 6.56 percent. Inflation is expected to end 2015 at 6.60 percent, up from 6.56 pecent in the prior week's survey, according to the median forecast of about 100 market economists. Brazil's government targets an inflation rate of 4.5 percent, with a tolerance margin of two percentage points. The median estimate for economic growth this year fell to 0.40 percent from 0.50 percent previously.

New economic team of Brazil has announced measures to reduce spending to show commitment to the fiscal adjustment promised by Finance Minister Joaquim Levy. The country’s growing budget deficit and the estimated slowest growth in five years in 2014 have raised the risk of losing investment-grade status, while inflation ended the year close to the ceiling of the official target range.

Brazil’s annual inflation ended last year at 6.41 percent. Monthly consumer prices accelerated to 0.78 percent in December from 0.51 percent the month before. The central bank targets annual inflation of 4.5 percent, plus or minus two percentage points.

On December 3 the central bank raised the benchmark interest rate a half-point to 11.75 percent in a bid to slow inflation, after boosting the rate a quarter-point in October. In its quarterly inflation report on Dec. 23, the bank said it will “do what’s needed” to lower inflation to target by 2016.

Brazil’s economy grew 0.1 percent in the third quarter over the three previous months, after contracting 0.6 percent in the second quarter. The result pulled Brazil from the recession it entered in the first half of the year.

Standard & Poor’s in March last year downgraded Brazil’s credit rating to one level above junk, citing the economic slowdown and deteriorating fiscal accounts. Moody’s Investors Service in September lowered its outlook on the Baa2 rating to negative. That is the second-lowest investment grade.