February 27, 2020 / 6:17 PM / a month ago

UPDATE 1-Wall St banks cut Brazil 2020 GDP growth forecast further below 2% threshold

(Adds JP Morgan forecast change, byline)

By Jamie McGeever

BRASILIA, Feb 27 (Reuters) - Bank of America Merrill Lynch on Thursday cut its 2020 Brazilian economic growth outlook to under 2.0%, while JP Morgan reduced its outlook for Latin America’s largest economy even further below the threshold that many observers say is highly sensitive for President Jair Bolsonaro’s administration.

Economy Minister Paulo Guedes and other officials have consistently said the government’s right-wing economic reforms and record low interest rates will deliver growth this year comfortably above 2%, with Guedes confident of 2.5%.

But several economic indicators have been weaker than expected recently, and Brazilian media have reported that Bolsonaro is becoming increasingly frustrated with Guedes the more it looks like 2% growth this year might be in jeopardy.

Citing the hit to China’s economy from the coronavirus outbreak, economists at BAML and JP Morgan both cut their 2020 Brazil growth outlook for the second time this month, with BAML’s going to 1.9% from 2.2%, and JP Morgan to 1.8% from 1.9%.

“The coronavirus outbreak should negatively impact exports. Given the expected bigger impact from the virus and ongoing mixed economic activity indicators in Brazil, we shave our forecast by another 30bp (basis points),” BAML economists David Beker and Ana Madeira wrote in a research note.

JP Morgan’s economists said investment growth this year will now be lower at 5.0%, while exports will fall 0.5% compared with an earlier forecast of 0.5% expansion.

“All in all, we now see 2020 GDP rising 1.8%, a tenth lower than our estimate published at the beginning of this month,” they wrote.

The government’s official 2020 growth forecast remains 2.4%, although Treasury Secretary Mansueto Almeida said in an interview earlier this month that may be revised.

A few private sector forecasters, like UK-based research firm Capital Economics, are more gloomy, predicting 1.5% growth this year. The average from the central bank’s latest ‘FOCUS’ survey of economists this week edged down to 2.2% from 2.23%. (Reporting by Jamie McGeever; Editing by Steve Orlofsky and Richard Chang)

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