Brazil's economy appears to have turned a corner, but political uncertainty is on the rise, prompting the International Monetary Fund on Thursday to cut its 2018 growth forecast for the recession-hit country.
The recovery is likely to be "subdued" because "a recent rise in political uncertainty has cast a shadow over the outlook," the fund said in its annual review of the Brazilian economy.
The IMF now forecasts growth rise to 0.3 percent this year -- a slight increase from the 0.2 percent estimate in April, and a dramatic improvement over the 3.6 percent contraction last year.
But the IMF cut the growth outlook for 2018 to 1.3 percent from 1.7 percent in its April report. The economy is expected to expand by two percent in 2019 and subsequent years.
"Brazil's deep recession appears close to an end," the report said, acknowledging the "ambitious reform agenda" of President Michel Temer's government.
But Temer is battling for his political survival after being charged with taking bribes.
The IMF cautioned that "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."
The IMF prepared its report before the Brazilian Senate this week passed sweeping and controversial labor reforms, which allow companies and workers to negotiate agreements on certain issues, end compulsory union dues and give firms more flexibility on work hours and vacations for employees.
Temer has said Brazil's economy faces a meltdown without severe fiscal discipline and belt tightening, and succeeded in getting Congress to pass a 20- year freeze on spending increases.