São Paulo – Brazil should resume economic growth in 2017 after a “deep recession with many roots”, stated the International Monetary Fund (IMF) in a report on the Brazilian economy made public this Thursday (29). According to data from the report, the measures announced by the Brazilian government already resulted in a positive response by investors, however, this is not enough. For the IMF, Congress needs to approve quickly the measures proposed by the Executive branch.
“There are tentative signs that the recession is nearing its end. Staff project output growth of -3.3% in 2016 [that is, retraction] and about 0.5% in 2017. The projection is predicated on the assumption the fiscal spending cap and social security reform are approved in a reasonable timeframe, and the government will meet the proposed fiscal targets for 2016 and 2017”, says the IMF’s report. It also points out that inflation is gradually losing steam.
The Fund mentions that Brazil had, in recent years, an above-average growth driven by a consumption boom and high commodity prices. However, due to old structural problems and measures that revealed to be counterproductive, plus a new global economic scenario, drove the country to recession.
The country could be recovering out of this scenario, but is facing the challenge to present the proposed reforms to Congress. There’s also a global scenario not particularly favorable to economic recovery, with the slow-paced growth of developed and developing economies and the low price of commodities.
“But some upside risks have also emerged. Recent policy pronouncements have boosted confidence and asset prices. If this gathers further momentum, for example, because of a faster-than-expected approval of the spending cap and social security reform, it could facilitate a reduction in risk, triggering a more vigorous turnaround in investment (including as a result of M&A activity) and growth”, says the Fund.
The report also shows in which sectors the country must improve to reduce government spending. It lists social security, with the announced social security reform that plans to increase minimum retirement age; commitment by state governments with spending cuts, improvement of the fiscal structure and a new minimum wage formula, linked to productivity gain and that could reduce fiscal pressure over the pensions system.
Other suggestions by the Fund are reforms to make the concessions program more attractive to investors, reduction in tariff and non-tariff barriers and the labor and tax reforms.
*Translated by Sérgio Kakitani
