Brazil's political woes lead to lower growth expectations

BRASILIA - The uncertainty provoked by the crisis facing the government of President Michel Temer is weighing heavily on economic predictions, with financial analysts lowering their growth forecasts for 2017 and 2018.

In its latest Focus poll of financial experts published Monday, Brazil's Central Bank found that expectations for GDP growth in 2017 had lowered from 0.5 to 0.41 percent and from 2.4 to 2.3 percent for 2018.

According to the analysts polled, this drop in confidence is due to expectations that new elements will arise to incriminate Temer during the investigation being carried out by prosecutor-general Rodrigo Janot.

These political problems, which have also seen several government ministers facing corruption charges, have essentially frozen Temer's reform package in Congress, which is likely to spook investors and halt a fledgling economic recovery.

Brazil saw its hopes raised with its GDP growing by 1 percent in the first quarter after two years of continuous contraction.

However, this crisis has lowered expectations once again, with inflation predictions dropping from 3.9 to 3.71 percent in 2017 and from 4.4 to 4.37 percent for 2018. If accurate, this would be below the government's annual target of 4.5 percent, increasing chances the central bank will slash interest rates.

The expected exchange rate of Brazil's real remained fixed, with predictions it will stand at 3.3 reais against 1 U.S. dollar at the end of 2017 and 3.4 to 1 at the end of 2018.