AS-AD MODEL ON BRAZIL’S GROWTH FORECAST
In its World Economic Outlook report update, the International Monetary Fund (IMF) cut its global economic forecasts for this year and next, estimating 3.1% growth for 2013 and 3.8% for 2014.
Among all countries, Brazil suffered the biggest GDP growth downgrade for 2014.The IMF changed its 2013 and 2014 outlook for the Brazilian economy to an expansion of 3% and 3.2% compared to the previous estimates of 3.5% and 4%.
In its April report, the IMF noted that the country continues to suffer from low levels of private investment, as well as deteriorating confidence in both the local and international investor communities, worsened by the country’s stubbornly high inflation and recent massive social protests.
Instructions: Using the AS-AD model, critically discuss the logic behind the IMF’s decision to downgrade Brazil’s growth forecast.