Brazil's Central Bank on Thursday slashed the growth estimate for this year by a full point to 1.6 percent largely due to a massive truckers strike in May that hit many sectors of the economy.
The Central Bank of Brazil (BCB) previously forecast GDP growth of 2.6 percent, but its latest quarterly inflation report said the 10-day transportation stoppage in late May had "direct and indirect" effects on the economy.
While the impact is not entirely clear, it likely spilled over into June "affecting the growth dynamic of the second quarter and influencing the downward revision to annual growth," the report said.
The truckers strike, called to protest increases in diesel prices, shut down supplies of fuel and food at a time when the economy had been showing signs of improving after emerging last year from two years of recession.
The conservative government of President Michel Temer cut its growth forecast prior to the strike, lowering it nearly half a point to 2.5 percent. The International Monetary Fund projects a 2.3 percent expansion this year but that too was issued prior to the strike and could be revised in July.
The strike also is expected to boost 2018 inflation, although the rate is not expected to surpass the Central Bank's 4.5 percent annual target, the report said. There is a 1.5-point margin of error around that target.
The Central Bank now expects the IPCA price measure to rise 4.2 percent this year, compared to the 3.8 percent March estimate, slowing to 3.7 percent next year.
Brazil's economy also has been hit in recent weeks by global trade tensions and rising US interest rates, which led to a sharp depreciation of the real against the US dollar as investors head for the exits in search of higher returns elsewhere.
The country also faces uncertainty over the coming elections in October as none of the leading candidates so far has backed Temer's stalled market reforms.