March 22, 2017 / 5:17 PM / in 7 months

UPDATE 1-Brazil cuts 2017 growth forecast, sees inflation below target

(Adds inflation forecasts, context on expected budget measures)

BRASILIA, March 22 (Reuters) - Brazil’s government lowered its estimate for economic growth in 2017 but forecast a stronger recovery next year, a revision likely to lead to budget freezes and tax hikes as the country emerges from its worst recession on record.

The Finance Ministry lowered its growth estimate for 2017 to 0.5 percent from 1.0 percent and forecast an expansion of 2.5 percent in 2018, according to a statement. The estimates are in line with the consensus view of about 100 economists who the central bank polls weekly.

The government also lowered its 2017 inflation forecast to 4.3 percent from 4.7 percent, below its 4.5 percent target. It said it expected inflation to end 2018 at 4.5 percent.

The ministry is expected to announce spending freezes of 30 billion reais to 35 billion reais ($9.7 billion to $11.31 billion) and tax increases later on Wednesday as it tries to meet its 2017 budget deficit target.

Brazil’s primary budget deficit target for this year is 139 billion reais, but the country’s two-year recession has shrunk revenue. Finance Minister Henrique Meirelles has reiterated in recent days that the government was unwilling to raise taxes but would do so if necessary.

The tax increases under consideration include one on gasoline and another on financial operations called IOF, both of which would not require legislation, Senate leader Romero Jucá told Reuters on Tuesday.

The recession sent unemployment to a record high and cost Brazil its investment-grade debt rating.

The central bank has slashed interest rates from a decade high to try to boost growth, while President Michel Temer pushes through an agenda of austerity measures to attract foreign investors. (Reporting by Marcela Ayres; Writing by Silvio Cascione; Editing by Lisa Von Ahn)

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