BRASILIA, July 15 (Reuters) - Brazil's recession will extend into next year, hurting President Dilma Rousseff's efforts to shore up public finances and arrest a sharp increase in unemployment, Itau Unibanco's chief economist said in a report on Wednesday.
Itau Unibanco is the largest financial institution yet to forecast Brazil's gross domestic product will shrink for a second straight year in 2016, according to Reuters Polls data.
Ilan Goldfajn, the bank's chief economist, forecasts a drop of 2.2 percent in 2015 and 0.2 percent in 2016, down from previous estimates for a decline of 1.7 percent in 2015 and an increase of 0.3 percent in 2016.
The revision suggests that consensus estimates for Brazil's economic growth will probably continue to worsen in coming weeks despite efforts by Finance Minister Joaquim Levy to restore market confidence.
The median forecast of economists last week was for Brazil's economy to grow 0.5 percent in 2016, according to a weekly central bank survey.
"Leading and coincident indicators suggest that the declining trend in economic activity may last longer - and be stronger - than we expected," Goldfajn said in his note.
Itau expects Brazil's unemployment rate to climb to 8.0 percent this year and 9.0 percent in 2016, in a likely blow to Rousseff's already-low popularity.
The bank also expects Brazil to miss its main budget target in both years, with a primary budget surplus of just 0.5 percent in 2015 and 1.0 percent in 2016. The target is currently 1.1 percent for 2015 and 2 percent for 2016.
Inflation will probably remain above the center of the government's target of 4.5 percent, settling to 5.3 percent at the end of 2016. Still, signs of slower inflation in 2017 should allow the central bank to cut its benchmark rate from an expected 14.25 percent at end-2015 to 11.25 percent in 2016, Goldfajn said. (Reporting by Silvio Cascione; Editing by Chris Reese)