Industry and GDP estimated to drop 3.4% and 1.2% in 2015

The economic slowdown facing the country caused the National Confederation of Industry (CNI) to downgrade its predictions for 2015. In the quarterly Cyclical Report, released on Tuesday (Apr 14), the agency forecasts a fall of 1.2% for Brazil's gross domestic product and a 3.4% contraction in industry.

The decline in industrial activity will be driven by construction, expected to slide 5.5%, and by manufacturing, whose production is likely to slump 4.4%. Public utility utilities, like electric energy and water, should close out the year down 2.8%.

The reduction in industrial activity, coupled with a predicted decrease of 0.6 in consumption among families, will pull services down 0.4% in 2015—the first contraction in over two decades. According to CNI, the only segment in the economy that is not expected to show a negative outcome will be agriculture, which is to nudge up a mere 0.5%.

Due to the country's lackluster performance in economy, the institution revised 2015's average unemployment rate to 6.7%. In December last year, the agency had forecast a 1% expansion for the GDP, along with a 1% surge in industrial production, and a climb of 0.7% in families' consumption. The estimate for unemployment stood at 5.2%.

CNI Executive Manager for Economic Policies Flávio Castelo Branco argues that the deterioration of the economic scenario was more intense that had been perceived late last year, which caused an impact on investors' confidence in industry and discouraged investments from private enterprise. The document reports that gross fixed capital formation, which measures investments, should slide 6.2% in 2015, as opposed to the prediction made in December, according to which the increase would stand at zero.

“The inflation rose, and public fees have been restored. The deterioration has also hit foreign accounts. In this environment, the confidence of the industrial investor has grown weaker—it's the lowest level since the late 90's,” he explained. He went on to name other non-economic factors that had an effect on the economy, like the scandal at the state-controlled oil giant Petrobras. “There's been a problem in the country's main company, which reduced its investment program and affected a whole chain of suppliers,” he added.

In Castelo Branco's view, although necessary, the economic adjustment implemented this year will aggravate the economy in the short run due to lower government spending, higher taxes, and the change in fixed prices, like energy and fuel. Nonetheless, he maintained that recovery is not achieved through fiscal and monetary measures alone.

“Our judgment is that we should draw up an agenda favorable to the resumption of economic growth, with measures aimed at boosting competitiveness,” he declared.

Translated by Fabrício Ferreira