Brazil facing hardest stage of fiscal adjustment, analysts say
A flagging economy, rising unemployment, and inflationary pressures created by rising regulated prices (utility rates) are the costs of the government's fiscal adjustment policy, with benefits only to be felt in the medium and long term. This view is in the Economic Scenario Report #27 (Carta de Conjuntura n°27) launched Tuesday (June 23) by the Economic Environment Studies Group (GECON) of the Applied Economic Research Institute (IPEA) in Rio de Janeiro.
Uncertainties about how long it will take until the benefits of the fiscal adjustment begin to be felt by the population have led economists to describe the current period as the hardest stage of the adjustment process, “because the costs are very clearly shown, but the benefits are not visible.”
According to GECON Coordinator Fernando Ribeiro, even if there is any recovery in the second half of the year, “given the downturn [the economy has faced] so far, we'll likely close out this year with economic contraction.”
The economist believes 2015 “will be a year of flagging activity, higher inflation, and rising unemployment.”
IPEA expects that the exceptions to this adverse economic scenario will be farming and mining (particularly in the oil industry), which will keep an upward trend throughout the year.
The effects of the inflation hike, for example, according to Ribeiro, will only become visible in 2016. As a reflection of rising regulated prices, inflation this year will be higher than that of 2014. “Inflation should go down next year, the Central Bank is working to make it fall as close as possible to the 4.5% target. But this year here's not much we can do.”
Translated by Mayra Borges
Fonte: Brazil facing hardest stage of fiscal adjustment, analysts say
