Brazil 2020 growth forecasts cut to new low, despite pension reform progress: survey

Reuters
Traffic moves past the headquarters of the central bank in Brasilia

BRASILIA (Reuters) - Economists cut their 2020 Brazilian economic growth forecasts to a new low, a central bank survey showed on Monday, despite Congress delivering a major breakthrough on pension reform that most analysts say should boost business sentiment and activity.

The average forecast from 72 economists in the central bank's weekly 'FOCUS' survey for the week ending July 12 was for the economy to expand 2.10% next year, down from 2.20% the week before.

That's the lowest forecast so far this year - down significantly from the peak of 2.80% predicted in March - and comes just as projections for next year might have been expected to rise following the pension reform breakthrough.

Brazil's lower house of Congress last week overwhelmingly backed a landmark bill that aims to save the Treasury around 1 trillion reais ($267 billion) over the next decade, boost investment and bring the anemic economy back to life. Full approval in the lower house, however, may be delayed until August.

The average forecasts in the central bank's weekly 'FOCUS' surveys provide a comprehensive, real-time guide to market sentiment on the Brazilian economy.

Economists also trimmed their 2019 growth forecasts for the 20th consecutive week, but by a miniscule amount, to 0.81% from 0.82%. The government last week halved its 2019 growth forecast to 0.8% and cut its 2020 forecast to 2.20% from 2.60%.

Having contracted 0.2% in the first quarter of the year, the economy likely stagnated, possibly even slipping into recession, in the second quarter, recent economic indicators suggest.

Economists lowered their average end-2021 forecast for the central bank's benchmark Selic interest rate to 7.00% from 7.50%, and left their end-2019 and end-2020 predictions at 5.5% and 6.00%, respectively, for the second week in a row.

Central bank president Roberto Campos Neto last week said progress on fiscal and economic reforms improves the outlook for inflation. But he has consistently stressed there is no mechanical link between reforms and interest rates, although that is a link many market participants have indeed made.

Economists' average inflation forecasts were little changed in the latest week, inching up to 3.82% from 3.80% for this year and down to 3.90% from 3.91% for next year.

(Reporting by Jamie McGeever; Editing by Chizu Nomiyama)