Top Brazil forecaster sees recession but no credit downgrade: Reuters poll

Despite the gloom, recent government efforts to close its budget gap will probably allow Latin America's largest economy to escape a credit downgrade, which could send its debt rating close to, or even into, junk territory, said Thais Zara, chief economist at local consultancy Rosenberg & Associados.

"There is a constellation of reasons for lower economic growth this year: tighter fiscal and monetary policies, deteriorating job markets, costlier credit, the fallout of the Car Wash corruption probe (on major oil and construction companies), water and energy rationing," Zara said.

"But if it's evident the government is putting some effort into improving its fiscal results, it can manage to avoid a downgrade," she said, even if slower growth prevents it from meeting its primary surplus target of 1.2 percent of GDP.

Rosenberg topped the Reuters Polls 2014 accuracy ranking in Brazil, followed by UBS and Itau Unibanco. The list considered estimates for gross domestic product, inflation and joblessness.

Zara is more pessimistic about 2015 than her counterparts, forecasting Brazil's GDP will shrink 1.5 percent. The median estimate in a recent central bank poll of about 100 institutions was for a decline of 0.5 percent.

Her estimate assumes Brazil will need to ration electricity later this year, an outcome that has not yet been confirmed by authorities. If it does not need to ration electricity, to which she assigns a 45-percent probability, the economy would still shrink by 0.7 percent, mostly in the first half of the year.

"Even without the rationing, the uncertainty over electricity supply is hanging over investments," she said.

Inflation is set to remain high, closing the year at 7.4 percent in her base scenario. That would be the first time the central bank would miss its 4.5 percent inflation target, even considering a two-point tolerance margin, since 2003.

Zara expects Brazil' benchmark interest rate to rise to 13 percent by yearend from 12.25 percent currently. The country's currency, the real , will probably hover around the 3-per-dollar mark, especially if the U.S. Federal Reserve starts raising rates later this year as expected.

The rankings, compiled by StarMine, are based on a firm’s forecasts for key economic indicators released in 2014. StarMine aggregates release-based accuracy scores for each contributor over all indicators and releases during the year to determine overall score and rank for each contributor in a given country.

(Reporting by Silvio Cascione; Editing by Ross Finley and Peter Galloway)