UPDATE 1-Goldman Sachs cuts Brazil GDP forecasts, now sees Q1 contraction

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By Jamie McGeever

BRASILIA, May 15 (Reuters) – Economists at Goldman Sachs on Wednesday cut their economic growth forecasts for Brazil, predicting that the economy shrank in the first quarter this year and will struggle to grow much faster in 2019 than it did in each of the last two years.

After a string of weak economic indicators, culminating in a fall in the central bank’s IBC-BR economic activity for March, they lowered their first-quarter gross domestic product growth forecast to -0.1% from +0.2% and their 2019 forecast to +1.2% from +1.7%.

“The economy continues to operate with a very high degree of slack in terms of resource utilization,” Alberto Ramos, head of Latin American economic research at Goldman Sachs in New York, wrote in a note on Wednesday.

“Progress towards fiscal consolidation … remains … quintessential to anchor market sentiment, support consumer and business sentiment, and leverage what has been so far a very shallow and disappointing recovery,” he said.

Ramos and colleagues revised their outlook immediately after the central bank’s monthly IBC-BR economic activity index showed a stronger-than-expected fall in March, giving a 0.68% decline in the Jan-March period.

Not only have first-quarter indicators been much weaker than anticipated, survey indicators continue to point towards sluggish activity in the second quarter. Echoing central bank policymakers, Ramos also said there will be a “negative statistical carry” over into the April-June quarter from Jan-March.

On Tuesday the central bank said there was a “relevant probability” that GDP contracted in the first quarter, and Economy Minister Paulo Guedes said the government will cut its 2019 growth forecast to 1.5% from 2.2%.

Goldman’s 2019 GDP growth forecast of 1.2% is lower than the average market consensus of around 1.5%, and barely above the 1.1% growth registered in 2018 and 2017. (Reporting by Jamie McGeever Editing by Susan Thomas)

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