Rio de Janeiro--Brazil's economy will contract by one percent this year, weighing down Latin America as the region struggles to rekindle growth despite low commodity prices, the IMF said Tuesday.
Brazil, the world's seventh economy and Latin America's largest, is being hit by inflation, private-sector doldrums and a massive corruption scandal at state oil giant Petrobras, the International Monetary Fund said in its latest forecast.
"Private sector sentiment remains stubbornly weak because of unaddressed competitiveness challenges, the risk of near-term electricity and water rationing, and the fallout from the Petrobras investigation," said the Fund in its quarterly projections for the world economy.
"Greater-than-expected need for fiscal tightening also plays a role in the downward revisions."
That ratchets the pessimism up a notch from the IMF's previous two forecasts: In January, it predicted Brazil's economy would grow 0.3 percent this year, and in October it predicted growth of 1.4 percent.
The outlook is slightly better for 2016, when the IMF predicts one-percent growth, down from 1.5 percent in the previous forecast.
Brazil's central bank also expects a recession in 2015, but is predicting a smaller contraction of 0.5 percent.
The bleak forecast comes as Brazil's new Finance Minister Joaquim Levy works to overhaul the national budget and achieve a primary surplus of 1.2 percent of GDP this year, after the country finished 2014 with its first primary deficit since the current set of records began in 2001.
But the IMF warned fiscal tightening would come at the cost of a consumption slowdown.
Brazilian consumers are already struggling with high prices.
The IMF said it expects inflation to come in above the government's target ceiling of 6.5 percent for the year.
Brazil's economy grew 0.1 percent last year, its fourth straight year of disappointing growth and a far cry from the heady days from 2005 to 2010 when it averaged growth of 4.5 percent a year.
President Dilma Rousseff's government is facing a pile of discouraging economic data.
AFP
