BRAZIL-Adjustments start early this year

Here we go again!

You might remember that close to the end of 2015, analysts and pundits were forecasting Brazil’s GDP growth for 2016 on the order of -1.5%. By the time the federal budget was put together, the forecast number had changed to -2.8% (where it currently stands).

Throughout 2015 the growth rate for the year was adjusted downward on several occasions and so far resides at -3.8% (likely to change once December figures have been released).

This year, the forecast revisions are earlier. We are not even 3 full weeks into 2016 and the IMF changed its growth forecast for Brazil in 2016 to -3.5%.

If this year is anything like last (and I suspect it will be) we can expect various revisions throughout the year as the expected bad news pours in.

To save yourself some anguish and constant revision of your own forecasts, you might want to consider -4.2% to -4.5% for growth in 2016.  If it turns out to be better, you won’t be disappointed.

Dilma Rousseff has announced some expenditure cuts that I expect will be revised as unemployment continues to rise and is accompanied by rising inflation at least for the first half of the year.

The basis for my forecast is that mid-term elections will be held in October and until then, Dilma has to show some progress toward a primary surplus. While it is expected that the PT will "take a bath" in the elections, Dilma will have to salvage whatever she can. However, she will also be beset by requests for patronage leading up to elections.

If exceptions become necessary to ensure votes in some municipalities, she is likely to provide “regional” spending increases. After all, it’s the squeaky wheel that gets the grease. You can expect to hear some mayors of allied parties to squeak loudly.

I simply do not expect to see an austerity budget implemented in 2016.