2/20/2014 @ 8:58AM

Brazil might be heading for a recession, according to the emerging markets Americas research team at Nomura Securities in New York.

Tony Volpon, a managing director at Nomura, said in a note Thursday that thanks to increasing interest rates in 2013, the economic growth in the first half of 2014 should disappoint Brazilian investors.  He lowered his GDP forecast target to 1.3% from 1.5% and expects the Central Bank to stop the hiking cycle this month, pushing interest rates to 10.75%.

As it is, third quarter GDP fell more than the market expected. Brazil’s economy contracted by 0.5% while market consensus still had it weak, at -0.3%. Volpon and his team warned of back-to-back negative quarters. They were at it again this morning in a client note.

“The pessimistic view is largely based on our in-house financial conditions index and our forecasting work based on the FCI,” Volpon explained. “Financial conditions tightened…and we believe the bulk of the impact would then manifest itself in the fourth quarter.”

Volpon is forecasting 0.1% contraction now for the fourth quarter.

Economic data so far has confirmed Nomura’s dour outlook.

Industrial production fell 0.6% monthly in November and another 3.5% in December. The Central Bank’s IBC-Br monthly GDP index contracted 0.17% quarter over quarter in the fourth after a 0.21% quarterly drop in the third. Data in Brazil is starting to be reminiscent of the 2008 financial crisis.

“The Brazilian economy may well be in middle of a technical recession. We now expect 2013 GDP (grew) merely 2%,” Volpon said.

Brazil’s equity market has 10.97% year-to-date and is down around 30% over the last year, making it one of the worst performing markets in the world.