Brazil revises economic growth outlook downward to 0.9 percent from 1.8 percent

Brazil’s Planning Ministry has revised down its economic outlook for 2014 to 0.9% growth from 1.8%, while annual inflation is forecast to remain at 6.2%. During the first half of this year Brazil slipped into recession after posting two quarters of economic decline.

This is bad news for President Dilma Rousseff who is fighting for re-election on October 5. For five years running inflation has exceeded targets. Ms. Dilma has a gigantic task at the moment trying to persuade her electorate she is the best choice as prices continue rising while the economy shrinks. Amazingly, she is pulling ahead in the polls.

The country’s central bank, the Banco do Brasil, has held interest rates at their highest levels for the last two years, as it tries unsuccessfully to bring down inflation and ends up stifling the economy.

Brazil’s GDP shrank by -0.2% and -0.6% in the first and second quarters respectively, marking the country’s first official recession in five years.

In mid-September inflation increased to 6.62% from 6.49% in mid-August, which is way higher than the central bank’s target of 4.5%.

President Dilma Rousseff was interviewed on Monday on Globo TV’s “Bom Dia Brasil” (Good Morning Brazil).

The Brazilian real plunged 1.2% to US$2.3969 while swap rates on the contract for January 2017 increased by two percentage points to 11.99% on Monday.

Policy may change if things improve

In a televised interview on Monday, Ms. Rousseff said Brazil’s economic outlook depends on US growth.

Ms. Rousseff said:

“We must see how the crisis is going to evolve. If the U.S. evolves well, I believe Brazil can enter a new phase, with less need for stimulus.”

If Brazil’s economic situation gets better, she believes the government will be able to shift to a more proactive policy.

“We are in a defensive posture,” she explained. “We need to protect jobs, wages and investment. We bet on a boost that will allow us to change into an aggressive posture.”

Ms. Rousseff pointed out that several of Brazil’s trading partners in Latin America are experiencing economic problems.

Rousseff pulls ahead in polls

Despite the country’s economic woes, Ms. Rousseff is widening her lead over second-placed candidate Marina Silva.

According to a Datafolha Institute poll, Ms. Rousseff has 37% (from 36%) support, compared to Ms. Silva who has 30% (from 33%). Aecio Neves is in third place with 15%.

Datafolha wrote on Friday “The candidate Dilma Rousseff has widened her lead over Marina Silva for the first time since the announcement of the former senator in the Presidential race, in the second half of August.”

Ms. Silva, of the Brazilian Socialist Party (Partido Socialista Brasileiro, PSB), became the official presidential candidate after Eduardo Campos died in a plane crash in August.