WARNING OF SLIP INTO RECESSION

BRAZIL’s Economy Ministry warned on Friday that the economy would slip into recession next year and official interest rates could more than double unless Congress approved measures to reduce the deficit in the country’s pension system. The warning came days after President Jair Bolsonaro presented his ambitious social security reform plan to Congress, which aims to save over 1 trillion reais (R3.72trln) in the next decade. Overhauling the creaking social security system is seen as critical to shoring Brazil’s public finances, boosting investor confidence, fostering growth and keeping interest rates and inflation under control, most economists say. In its first official forecast on the potential impact on the economy over the next five years of reform or no reform, the Economy Ministry laid out starkly contrasting scenarios. “In the event of no pension reform, GDP growth in 2019 will be 1 percent lower and Brazil will enter recession in the second half of 2020, approaching the level of losses seen in the 2014-16 period,” the ministry’s economic policy division warned in the report. It said growth this year would slump to 0.8 percent from 1.3 percent last year – far weaker than the market consensus of about 2.5 percent and much worse than the 2.9 percent “best case” scenario of reform being passed. Recessionary forces would also deepen over coming years if the pension system stays unchanged, the ministry said. | Reuters