Brazil: Economy likely to continue recovering in a timid way - BBVA

According to the Research Department at BBVA, the Brazilian economy will continue to recover in a timid way. They revised lower their GDP forecast amid political tensions. 

Key Quotes: 

“We revised down our GDP forecasts to 0.6% in 2017 and 1.5% in 2018, in both cases 0.3 p.p. below our previous forecasts. This revision is largely due to the upsurge of political tensions, in an environment marked by the increasing uncertainty about the continuity in power of President Temer.”

“The higher level of political uncertainty will postpone the recovery of investment and should prevent the approval of the indispensable social security reform in the short term.”

“Nevertheless, the economy will likely continue recovering in a timid way, leaving behind the recession. Among other factors, the economy will be stimulated by the reduction of interest rates, allowed by the sharp deceleration of inflation, which should close 2017 at 3.7% and 2018 at 4.3%.”

“The expansive tone of monetary policy will contrast with the contractionary tone of fiscal policy.”