Country Economic Forecasts > Brazil

Brazils economy contracted by 3.8% in 2015, after GDP fell by 1.4% on the quarter in Q4. For 2016, we now expect GDP to shrink by a further 4% on average, as we see no reversal in the factors that caused the contraction in 2015. One of the key reasons behind Brazils poor growth performance is the political situation. President Rousseff is facing impeachment proceedings. However, to oust the president, the opposition needs three-fifths of the votes in both houses of congress. The ruling coalition has only a narrow majority and is trying to gather more support from smaller parties by exchanging political favours for votes. Hence, legislators are now focused on the impeachment agenda rather than on the desperately needed reforms to the economy that have to be made if Brazils debt is to return to a sustainable trajectory. This sense of political paralysis is causing consumer and business confidence to remain extremely depressed. Despite further credit rating downgrades, the real (BRL) held up well in February and staged a rally in early March. But notwithstanding a shrinking current account deficit, most macro fundamentals still point to further BRL weakness and we forecast the real to close the year at 4.50 per USD.