Brazilian economic growth and interest rate forecasts for this year took a tumble on Tuesday as the U.S. Federal Reserve’s emergency rate cut highlighted the economic damage Latin America’s largest economy is likely to suffer this year.
Goldman Sachs economists slashed their 2020 economic growth forecast to 1.5%, well below the politically-sensitive 2% threshold, and Asa Bank’s Carlos Kawall said the central bank could eventually cut its benchmark Selic rate to 3.00%.
Monica de Bolle at the Peterson Institute for International Economics in Washington said Brazil could even slip into recession this year, depending on the severity of the hit from coronavirus.
The latest wave of downward revisions to this year’s forecasts came as the Fed surprised world markets with its first inter-meeting rate cut since the depths of the Global Financial Crisis in late 2008.
Alberto Ramos, head of Latin American research at Goldman Sachs in New York, said Brazil and other countries in the region will feel the hit to manufacturing and services activity, trade, tourism, and commodity prices.
“In Brazil, more monetary (easing) is appropriate given the lack of fiscal space and the fact that current and expected inflation are tracking below the target and the growth outlook remains weak,” he said in a note, explaining Goldman’s forecast change to 1.5% growth this year from 2.2%.
Ramos now expects the central bank to reduce the Selic rate by another 50 basis points this year to 3.75%. Asa Bank’s Kawall went further, predicting a 50-basis point cut later this month followed by another 25 bps in May to 3.50%.
Monica de Bolle at the Peterson Institute for International Economics in Washington said Brazil could even slip into recession this year, depending on the severity of the hit from coronavirus.
The latest wave of downward revisions to this year’s forecasts came as the Fed surprised world markets with its first inter-meeting rate cut since the depths of the Global Financial Crisis in late 2008.
Alberto Ramos, head of Latin American research at Goldman Sachs in New York, said Brazil and other countries in the region will feel the hit to manufacturing and services activity, trade, tourism, and commodity prices.
“In Brazil, more monetary (easing) is appropriate given the lack of fiscal space and the fact that current and expected inflation are tracking below the target and the growth outlook remains weak,” he said in a note, explaining Goldman’s forecast change to 1.5% growth this year from 2.2%.
Ramos now expects the central bank to reduce the Selic rate by another 50 basis points this year to 3.75%. Asa Bank’s Kawall went further, predicting a 50-basis point cut later this month followed by another 25 bps in May to 3.50%.