September 10, 2019 / 2:03 PM / 3 months ago

UPDATE 2-Brazil ups 2019 GDP growth forecast, but keeps iron grip on spending

(Adds detail, quotes)

By Marcela Ayres and Jamie McGeever

BRASILIA, Sept 10 (Reuters) - Brazil’s government on Tuesday slightly raised its 2019 economic growth forecast and said the worst for the economy is probably behind it, but showed no sign it is willing to ease up on its commitment to austerity and strict fiscal discipline.

Speaking to reporters in Brasilia after the growth outlook for this year was raised to 0.85% from 0.81%, Economy Ministry Secretary Adolfo Sachsida insisted that the government’s three main fiscal rules will stay in place.

It is also too early to say whether the economy’s recovery, which he believes is now underway, will allow the government to reduce the 34 billion reais ($8.25 billion) budget freezes it has announced so far this year, Sachsida added.

“The government is firm: the spending ceiling stands, the primary (deficit goal) stands, the ‘golden rule’ stands,” Sachsida told reporters.

The spending ceiling caps growth in public expenditure at the previous year’s rate of inflation, the primary deficit target this year is 139 billion reais, and the ‘golden rule’ bars debt issuance to cover current spending.

Sachsida was speaking after the Economy Ministry upped its 2019 gross domestic product growth forecast to 0.85% from 0.81%, although the accompanying official document published on Tuesday rounded the new projection down to 0.8%.

That is largely in line with the market consensus view of 0.87% growth, according to the central bank’s latest weekly ‘FOCUS’ survey of economists and financial institutions, but will still be the slowest pace of annual growth since Brazil emerged from recession three years ago.

The economy should expand by 0.2% in the third quarter, the Economy Ministry estimates, half the 0.4% pace of growth in the second quarter. But the corner is being turned, Sachsida said.

“The extremely difficult cycle of the Brazilian economy seems to have ended in August. From September onwards we will see a more consistent step-by-step recovery,” he said, citing record low interest rates and the freeing up of billions of reais from the ‘FGTS’ and ‘PIS/PASEP’ workers’ guarantee funds.

The government’s new estimates also included a reduction in the 2019 inflation forecast to 3.6% from 3.8%, even further away from the central bank’s official forecast of 4.25%.

The new forecasts are the economic parameters that will be used as the basis for the government’s upcoming bi-monthly spending review, which is due to be published by Sept. 22.

So far this year, the government has announced spending freezes totaling 34 billion reais to ensure it stays on track to meet its primary deficit target of 139 billion reais.

$1 = 4.12 reais Reporting by Marcela Ayres Writing by Jamie McGeever; Editing by Bernadette Baum and Alistair Bell

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