Forecast for 2015 Brazilian GDP growth falls to zero

HOUSTON (ICIS)–Economists expect the Brazilian economy will not grow at all this year, the nation’s central bank said on Monday.

Each week, the bank surveys economists and analysts about the prospects for GDP growth and other economic indicators.

For the latest survey, the economists predicted that GDP growth will be 0%, down from 0.03% the previous week.

The outlook for 2016 remained at 1.50% growth.

Meanwhile, the outlook for inflation continues to worsen. Economics now expects Brazil’s consumer price index (IPCA) to rise by 7.15% in 2015, up from 7.01% the previous week.

This is above the central bank’s inflation target of 4.5%, plus or minus two points.

This above-target outlook for inflation constrains the central bank’s ability to stimulate the economy.

Typically, during times of slow growth, central banks lower interest rates to stimulate the economy. However, low rates increase inflation.

The Brazilian Central Bank has opted to fight inflation, and it has recently increased the nation’s key Selic interest by 50 basis points to 12.25%.

That followed a previous 50-basis point hike at the end of 2014.

Another drag on the economy is the bribery scandal at Petrobras, the Brazilian state energy producer. The company is regarded as the most important in Brazil.

The scandal was unveiled by a federal investigation called Lava Jato, Portuguese for car wash.

In it, former company executive Paulo Roberto Costa had accused dozens of people of taking part in a massive kickback scheme involving company contracts.

To date, more than 30 people have been indicted, including Costa and 23 executives from six of Brazil’s largest construction companies.  

Following the scandal, Petrobras CEO Maria das Gracas Silva Foster and five other high-level executives resigned. 

Petrobras did not say way the executives resigned, and they had not been accused of any crimes. The company quickly announced replacements.

The scandal forced Petrobras to twice postpone its third-quarter announcements, which were only released late in January.

The scandal is already trickling down the economy. Late last year, Petrobras said it temporarily banned 23 companies from taking part in future bidding processes after federal police obtained evidence claiming executives from those companies had bribed Petrobras officials to win supply and building contracts.

Additional reporting by Simon West