September 26, 2019 / 12:17 PM / 2 months ago

UPDATE 1-Brazil cenbank ups 2019 GDP growth forecast, but notes 'high degree of uncertainty'

(Adds detail, quote)

By Jamie McGeever

BRASILIA, Sept 26 (Reuters) - Brazil’s central bank on Thursday raised its 2019 economic growth forecast slightly to 0.9%, adding that while the pace of expansion should accelerate next year, the outlook remains tinged with a “high degree of uncertainty.”

The central bank’s latest Quarterly Inflation Report also showed that policymakers expect Brazil’s trade surplus to narrow and the current account deficit to widen next year, against a backdrop of low inflation which should allow for even lower interest rates.

“The economy’s performance in the second quarter of 2019 led to raising the central growth projection for the year from 0.8% to 0.9%. For 2020, still with a high degree of uncertainty, growth of 1.8% is forecast,” the report said.

Brazil’s economy grew by 0.4% in the April-June period, twice as fast as economists had expected and a solid rebound after contracting in the first quarter. Growth will be “slow” in the third quarter but will pick up later this year, the report said.

Using market-based consensus interest rate and exchange rate forecasts, the central bank said inflation is likely to remain well-contained at around 3.3% this year and 3.6% next year. That’s significantly below the central bank’s official targets of 4.25% and 4.00%, respectively.

“The committee believes that the consolidation of a benign scenario for prospective inflation should allow for further adjustment in the degree of stimulus,” the report said, referring to the bank’s rate-setting committee known as ‘Copom’.

Copom last week lowered its benchmark Selic rate by 50 basis points to a new low of 5.50%. Financial markets are discounting further easing, with a growing number of economists predicting the Selic will go below 5.00%.

The central bank also tweaked its forecasts for Brazil’s international trade and investment flows.

It lowered its 2019 trade surplus forecast to $43 billion from $46 billion in its previous Quarterly outlook, and that is expected to narrow further next year to $41 billion.

Brazil’s current account deficit this year is expected to widen to $36.3 billion, or 2.0% of gross domestic product, from an earlier forecast of $19.3 billion, or 1.0% of GDP, owing to statistical revisions and updated forecasts of financial flows.

($1 = 4.15 reais)

Reporting by Jamie McGeever; Editing by Alison Williams and Nick Zieminski

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