SÃ O PAULO—The Brazilian government on Monday reduced its 2017 annual GDP forecast to 1.0% from 1.6%, a sign that Latin America's largest economy is struggling to rebound from a brutal recession.

Fabio Kanczuk, secretary of economic policy for Brazil's Finance Ministry, made the announcement at a press conference in Brasí lia.

Low oil prices and the lingering effects of a massive corruption scandal have hammered the country's key oil and gas sector, as well as state-run Petró leo Brasileiro SA Petrobras, as the company is known, is Brazil's largest company and biggest single source of investment.

Giant construction firms caught up in the graft probe have likewise been paralyzed, sending layoffs rippling through the economy.

Unemployment hit 11.8% in the June to August period. Around 12 million Brazilians are unemployed. Rising joblessness and falling incomes have hurt retailers, while sales of homes and cars have plummeted.

That vicious circle is weighing on Brazil's growth, with companies afraid to invest and consumers wary of spending, said Carlos Kawall, chief economist at Banco Safra in Sã o Paulo and a former head of Brazil's Treasury.

"To put their finances in order, companies are selling assets and cutting investment," he said. "We also see families making an effort to reduce their debt."

Brazil is grappling with ballooning debt and deficits that threaten its financial stability. The nation's debt is now rated junk by major ratings firms. The government of President Michel Temer is working to pass unpopular austerity measures, including a constitutional amendment to limit spending increases to the rate of inflation and reforms to the shaky pension system.

Finance Minister Henrique Meirelles had signaled the GDP revisions last week on a visit to New York where he was meeting with investors.

Mr. Meirelles said Brazil must move quickly to implement austerity measures to get Brazil back on track.

Write to Marla Dickerson at Marla.Dickerson@wsj.com and Luciana Magalhaes at Luciana.Magalhaes@wsj.com

(END) Dow Jones Newswires

November 21, 2016 15:25 ET (20:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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