International Monetary Fund. Western Hemisphere Dept.
INTERNATIONAL MONETARY FUND
Brazil's deep recession appears close to an end. But risks remain. The
government that took office last year found an economy in recession and structural
problems that threatened fiscal sustainability. The recession, triggered by large
macroeconomic imbalances and a loss of confidence, was exacerbated by declining
terms of trade, tight financing conditions, and a political crisis. Buoyed by congressional
and market support, the government has pursued an ambitious reform agenda. A
constitutional amendment that caps growth in federal noninterest spending in real terms
has been passed and progress has been made on the discussion of social security and
other structural reforms. Disinflation has gathered momentum, providing more room for
monetary easing. While the end of the recession appears to be in sight, a recent rise in
political uncertainty has cast a shadow over the outlook. The government's ability to
deliver on social security reform, a necessary step toward securing fiscal sustainability,
has become more uncertain-and, with national elections scheduled for 2018, the
window for legislative action is closing.