BRASILIA, July 1 (Reuters) - The outlook for Brazil’s economy deteriorated for the 18th week in a row, but only slightly, according to a central bank survey of economists on Monday, while expectations of deep interest rate cuts increased sharply.
The average forecast from around 100 financial institutions in the central bank’s latest weekly ‘FOCUS’ survey is for the economy to expand by 0.85% this year, compared with 0.87% the week before.
While it marks the 18th consecutive decline, it is small enough to suggest forecasts might be close to bottoming out. Last week, the central bank cut its 2019 growth forecast to 0.8% from 2.0% previously.
Economists also trimmed their average 2019 inflation forecast to 3.80% from 3.82%, another negligible revision, and sliced the average 2020 forecast to 3.91% from 3.95%.
Also last week, the central bank outlined a benign outlook for inflation in the next few years, while its 2022 inflation target was set at 3.50%, reflecting a steady and gradual decline from this year’s official 4.25% goal.
Among the most notable ‘FOCUS’ revisions were the forecasts for where official interest rates will end this year and next.
Economists now expect the central bank’s benchmark Selic rate to end this year at 5.50%, down from 5.75% in last week’s survey. That would represent a full percentage point reduction from the current record low 6.50%.
The average Selic forecast for end-2020 was lowered to 6.00% from 6.50% the week before, the survey showed.
Brazil’s economy shrank in the first quarter of the year and there is little evidence it recovered at all to any great extent in the second. While it may skirt technical recession, it is far weaker than economists predicted at the start of the year.
Much of the outlook for growth, inflation and interest rates depends on the government’s pension reform bill currently winding its way through Congress, which aims to generate savings of around 1 trillion reais ($262 billion) over the next decade by overhauling the country’s social security system. (Reporting by Jamie McGeever; Editing by Chizu Nomiyama)