Brasília – The World Bank slashed its economic growth forecast for Brazil by half this year. Its Gross Domestic Product (GDP) growth forecast changed down from 2.4% to 1.2% as per the report From Known Unknowns to Black Swans: How to Manage Risk in Latin America and the Caribbean, released this Friday (5). The 2019 GDP forecast also slid, from 2.5% to 2.2%.
The World Bank report points out that in late June, the Brazilian Central Bank’s 2018 growth estimate moved from 2.6% to 1.6% in the wake of a trucker strike. “The persistence of large and seemingly intractable fiscal deficits, lack of meaningful pension reform, and growing political uncertainty regarding the October elections, in conjunction with recent apprehension in international capital markets, have brought into question even such modest growth, with the current forecast being 1.2 for 2018,” the report reads.
The revision for Brazil, which accounts for over a third of the region’s GDP, also helped to bring down the estimate regarding Latin America and the Caribbean – to 0.6% in 2018 and 1.6% in 2019. The previous forecasts were 1.8% this year and 2.3% in 2019.
Another factor weighing on regional forecasts was market instability since last April in Argentina, the continuing deterioration in Venezuela and a turn for the worse in the international scenario. Weren’t it for Venezuela, the region’s GDP would go up 1.6% this year and 2.1% in 2019. According to the World Bank, “Venezuela continues to implode with an economic, financial, and social crisis unprecedented in the modern history of the region.”
South America’s economy is expected to shrink by 0.1% in 2018 and grow by 1.2% in 2019. With Venezuela out of the picture, growth would be 1.2% in 2018 and 1.9% in 2019. The World Bank names external factors that remain relatively favorable to the region, like growth in the USA, strong growth in China and a recovery in commodity prices.
Translated by Gabriel Pomerancblum