Brazil’s GDP forecast slide continues

MEDELLIN, Colombia (ICIS)–Brazil’s recession is expected to persist through 2016, with economists predicting that GDP will contract by 3% in 2016, the central bank said on Monday.

The central bank conducts a weekly survey in which it seeks forecasts about economic indicators.

Economists expect GDP to shrink by 3.00% in 2016, down from their forecast of 2.99% during the previous week.

For next year, analysts expect the economy to grow 0.80%, down from the 1.00% forecast the previous week.

Industrial production should contract by 3.57% in 2016, compared with a drop of 3.47% the previous week.

Inflation will reach an average of 7.23%, above the central bank’s target of 2.5-6.5%. For 2017, inflation projections were steady at 5.65%

Aggravating inflation is the weak real, which should reach an average of reais (R)4.19 to the dollar.

The central bank has attempted to control inflation by keeping the key Selic interest rate at a high 14.25%.

Brazil’s currency slipped to near its weakest ever against the US dollar last week after lower growth forecasts strengthened the case for the central bank to hold off on raising interest rates.

Following the bank’s decision, the economists decreased their forecast for the Selic rate for the end of the year from 15.25% to 14.64%.

In what local media and analysts called an unusual move, central bank chief Alexandre Tombini said on Wednesday, before the Selic rate decision, that policymakers would take into consideration the International Monetary Fund’s (IMF) “significant” cuts to Brazil’s growth outlook for this year and 2017.

The economic slowdown has been aggravated by a massive corruption scandal called Lava Jato, Portuguese for car wash.

Under the scandal, contractors allegedly paid bribes to win inflated contracts from state energy producer Petrobras, considered Brazil’s most important company. Prosecutors allege that a portion of the bribes went to politicians.