By Gabriel Burin
BUENOS AIRES (Reuters) – Prospects for a much hoped-for pickup of Brazil’s growth in coming months are being overshadowed by fiscal tensions, denting the outlook in a country struggling with a second wave of the coronavirus pandemic, a Reuters poll showed.
Latin America’s biggest economy has recovered from an historic recession in 2020 thanks to a massive spending drive. But this strategy has reached a crossroad and pressure is building on President Jair Bolsonaro’s government.
Investors worry he may soon abandon promises to realign the budget in order to push expenditures beyond a self-imposed “fiscal ceiling”, seeking to alleviate the pains of a brutal second virus wave and a lack of vaccines.
A Brazilian senator at the forefront of the race for the leadership of the upper house said last week he would discuss extending emergency cash transfers to millions of Brazil’s poorest people with other lawmakers and officials.
“Since the election for speaker/president of the Lower House/Senate will happen on Feb. 1, it wouldn’t be a surprise if political noise increases over the next week”, Citi analysts wrote in a report on Friday.
“All in all, these statements reinforce our long-standing call that total public spending will surpass the limit imposed by the spending cap of 1% of GDP”. Brazilian markets took note, logging hefty losses last week.
Any escalation of Brazil’s domestic financial woes could hit the nascent economic pickup, causing growth to undershoot an expected 10% year-on-year surge in April-June, according to the median estimate of 11 economists polled Jan. 19-22.
“A breach of the spending cap would trigger a confidence crisis, as it is very unlikely that the gross debt will stabilize in the next ten years,” Credit Suisse analysts wrote in a report earlier this month.
A larger sample of 39 respondents forecast GDP would increase 3.3% in 2021, slightly below a 3.5% estimate in the last quarterly poll, followed by marginally faster growth than previously thought in 2022, at 2.5%.
In Mexico, another 11 analysts saw a bigger GDP push in the second quarter than in Brazil, at an annual rate of 14.8%, which would lift the country’s economy by 3.5% in 2021 – the same forecast as in October.
(For other stories from the Reuters global economic poll:)
(Reporting and polling by Gabriel Burin, editing by Larry King)
