April 22, 2019 / 2:07 PM / a year ago

Brazil growth forecasts tumble ahead of key pension reform vote

BRASILIA, April 22 (Reuters) - Economists continue to slash their forecasts for Brazilian economic growth this year, according to a closely watched survey published on Monday, intensifying the spotlight on a key Congressional vote on pension reform later in the week.

The central bank’s weekly FOCUS survey of nearly 100 financial institutions showed the median forecast for 2019 growth fell sharply in the latest week to 1.71 percent from 1.95 percent a week before.

A drop of virtually one quarter of a percentage point in the space of a week is big, and mirrors the 0.27 percentage point fall to 2.01 percent on March 18 from 2.28 percent, just as political infighting on social security reform began to heat up.

At the start of 2019, the median FOCUS forecast was for 2.55 percent GDP growth this year.

“It’s really disappointing, and strengthens the view that interest rates will eventually be cut,” said Cleber Aliesse, a derivatives broker at brokerage H.Commcor in Sao Paulo. “The only thing supporting the rates curve and (official) interest rates is uncertainty over fiscal reforms.”

The FOCUS survey will make uncomfortable reading for the government, whose social security reform bill faces a crucial hurdle in Congress on Tuesday when the Constitutional and Legal Affairs Committee (CCJ) votes on its constitutionality.

The vote was supposed to take place last week but was delayed after lawmakers, including government allies, demanded more time to discuss some of the bill’s more controversial elements.

The government remains optimistic Congress will pass its plan to slash social security spending by 1 trillion reais over the next decade ($255 billion), which it says will restore public finances to health, unleash huge investment into Brazil and pull the economy out of its funk.

With the growth outlook darkening by the week, the need for approval of meaningful reform is growing.

Economists at research consultancy TS Lombard on Monday said sub-par indicators released so far this year suggest the economy may even have contracted in the first quarter, with uncertainty over reforms putting company investment plans on hold.

“In recent months, the lack of progress on structural reforms has eroded confidence for consumers, industry, retail and services,” Wilson Ferrarezi, the firm’s Brazil economist, wrote a note to clients.

$1 = 3.92 reais Reporting by Jamie McGeever Editing by Chizu Nomiyama

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