OECD Economic Outlook May 2019, Country Notes: Brazil

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Brazil The recovery has recently slowed despite favourable financial conditions but growth is projected to pick up to 2¼ per cent in 2020. An ambitious pension reform proposal to ensure long-term fiscal sustainability has been submitted to Congress, but uncertainty about the implementation of the reform remains. If this uncertainty dissipates, domestic demand is projected to accelerate and unemployment to decline. Given ample spare capacity, inflation is expected to remain below target. Monetary policy will remain accommodative, supporting household spending. Without major efforts to contain expenditure growth, the sustainability of fiscal accounts remains at risk, especially but not only due to rising pension spending. Rebalancing social spending towards low-income households would reduce inequalities. Achieving stronger growth will require further reform efforts to strengthen productivity, including closer integration into the global economy and lower administrative barriers to market entry. The expansion has shifted into a lower gear The economy continues to recover, but the pace has ebbed, especially for investment, as all eyes are set on the ability of the new administration to deliver reforms. Business confidence has started to recede against the background of uncertainty around the reform process. Growth in the services and primary sectors has compensated for a contraction in industrial output and the prospects for agricultural output remain favourable. Inflation and core inflation are below target, despite a minor uptick in recent months, and interest rates have remained low. This, together with moderate wage growth, is supporting private consumption, although unemployment has yet to improve. In particular, the composition of jobs created has been of low quality so far, with a disproportionate number of jobs created in the informal sector. Fiscal indicators continue to deteriorate.

Brazil 1 Real GDP is recovering only slowly and unemployment remains high Y-o-y % changes 4 Unemployment rate →

Short-term indicators are showing a mixed picture

% of labour force 15

Real wage bill

← GDP

Index Jan-2015=100 105

Central bank activity indicator

2

13

0

11

-2

9

-4

7

Retail sales

100

0

-6

2015

2016

2017

2018

2019

2020

5

95

90

2015

2016

2017

2018

85

Source: OECD Economic Outlook 105 database; Central Bank of Brazil; and IBGE. StatLink 2 https://doi.org/10.1787/888933934071

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019


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