[3/7/17] Brazil’s worst-ever recession intensified unexpectedly in the final quarter of 2016, data showed on Tuesday, frustrating hopes for signs of a recovery and stepping up pressure on President Michel Temer and the central bank to do more to promote growth.
Brazil’s gross domestic product contracted by 3.6 percent last year, statistics agency IBGE said, following a 3.8 percent drop in 2015. The nation’s two-year downturn is the longest and deepest on record for Latin America’s biggest nation.
The economic contraction worsened in the fourth quarter, with a steeper-than-expected decline of 0.9 percent, following a 0.7 percent drop in the previous three months.
Investment tumbled 10.2 percent in 2016, in a sharp drop that is partly blamed by economists on Brazil’s chronically high interest rates.
The central bank started to cut its benchmark rate from a decade-high of 14.25 percent in October and is expected to take it to single digits this year.
The disappointing data fueled calls for the central bank to accelerate the pace of rate cuts, currently running at 75 basis points per meeting. Yields on rate futures showed an increasing chance of a steeper cut when the bank makes its next scheduled policy decision in April, according to traders.
“There’s a lot of idle capacity in the economy and that’s a reason for the central bank to move faster,” said Cristiano Oliveira, chief economist at São Paulo-based Banco Fibra, responding to Tuesday’s data.
The majority view among economists is that Brazil will emerge from recession in 2017, but at a very slow growth rate of 0.5 percent, which would be insufficient to reduce unemployment. The government has forecast growth of 1 percent.
Some economists tempered their views even further following the dismal performance in 2016.
“We see zero growth in 2017, or maybe just a little bit above that,” said Carlos Kawall, chief economist at Banco Safra, in São Paulo. “We should not see any big recovery this year; we will have to wait until 2018.”