Brazil next in trouble? Economy to shrink by 1.7 percent, worst recession in 25 years: analysts

Analysts surveyed by the central bank forecast that Latin America's largest economy will shrink by 1.7 percent this year, the worst recession in 25 years, as unemployment and family indebtedness rise.

When Brazil revises its 2015 budget estimates Wednesday afternoon, the question investors will be asking is how much more spending can be cut without deepening an economic recession.
Tax revenue has dropped below government estimates this year as the economy slows amid austerity measures designed to mend the worst budget deficit on record, and rate increases intended to curb above-target inflation. With Finance Minister Joaquim Levy's budget target looking increasingly unattainable, speculation has grown that the government will lower the goal.

"Everyone knows the budget situation is bad, so we need a more realistic, transparent target," said Luciano Rostagno, chief economist at Mizuho Bank's Brazil subsidiary. "Cutting investments and raising taxes would be bad for recovery -- what's needed is a downsizing of the state, a reduction in ministries and discretionary posts."

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