IMF forecasts 1,0% contraction in Brazil's GDP in 2015.

(Reuters) The International Monetary Fund (IMF) has revised its projection for Brazilian economic activity upwards this year, marking the largest revision to its forecast for any major global economy, while simultaneously raising its inflation outlook sharply to well above the government's target.

In its "Global Economic Outlook" report released on Tuesday, the IMF now estimates that the country's Gross Domestic Product (GDP) will contract by 1,0 percent in 2015, compared to a previous projection of 0,3 percent growth made in January.

The outlook for 2016 was also reduced, by 0,5 percentage points, to growth of 1,0 percent.

"Private sector confidence has remained stubbornly weak, even after election-related uncertainty has dissipated, reflecting the risk of electricity and water rationing in the short term, unresolved competitiveness challenges, and the effects of the Petrobras investigation," the IMF highlighted in a note.

The new figures are released after the Brazilian economy achieved minimal growth of 0,1 percent in 2014, registering its worst investment performance in 15 years.

The IMF highlights that Brazilian authorities have renewed their commitment to controlling the fiscal deficit and reducing inflation, and that this will help restore confidence in Brazil's macroeconomic policy framework. However, it warns that this "will further restrain short-term demand."

The international organization's projections are in line with those of economists consulted in the Central Bank's Focus survey -- they foresee a GDP contraction of 1,01 percent in 2015 and an expansion of 1,0 percent in 2016.

The IMF left its projections for emerging and developing economies unchanged, estimating growth of 4,3 percent in 2015 and 4,7 percent in 2016.

Brazil, however, is far behind its BRICS partners India and China, countries for which the IMF forecasts growth of 7,5 percent and 6,8 percent respectively this year.

INFLATION

The IMF also sharply worsened its outlook for consumer price increases in 2015, projecting inflation at 7,8 percent, compared to 5,9 percent in the previous report, well above the government's target ceiling of 4,5 percent according to the IPCA (Brazilian consumer price index), with a margin of two percentage points above or below.

For 2016, the agency estimates inflation of 5,9 percent.

The IMF now forecasts an unemployment rate of 5,9 percent this year, compared to 6,1 percent previously, and 6,3 percent in 2016.

The IMF also projected that Brazil's current account deficit will be 3,7 percent of GDP this year, compared to the previously estimated 3,6 percent, and 3,4 percent in 2016.

(By Camila Moreira)