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IMF lowers Brazil's 2019 growth forecast to 1% to 1.5%

The International Monetary Fund expects Brazil's economy to grow between 1.0% and 1.5% in 2019, lower than its previous estimate of between 2.5% to 2.1%.

The revised projections have "significant downside risks," according to the IMF, which noted that sluggish investment and weak exports amid global growth slowdown had affected the economy's performance in the first quarter. The institution expects growth to recover in 2020, although this will depend on the approval of a robust pension reform and favorable financial conditions.

In a mission concluding statement, the IMF highlighted that pension reform will be a key step for fiscal consolidation. "To deliver the needed fiscal adjustment, Congress should preserve the proposed increase in retirement ages and decrease in the relatively high benefits, particularly for public sector employees," it underscored.

However, the IMF said more measures should be implemented for Brazil to achieve its fiscal targets, including lowering the public wage bill and cutting other current expenditures.

Lending growth in the banking sector has been moderate, with an estimated 8% credit growth among private banks offsetting a declining volume for public lenders. The smaller role played by public banks in terms of lending is "a welcome structural transformation," the IMF said, although it noted that intermediation margins remain high and hamper credit demand and investment.