Brazil Central Bank raises its GDP growth projection to 4.7% for 2021

RIO DE JANEIRO, BRAZIL – The Central Bank raised by 0.1 percentage point, to 4.7%, its projection for the growth of Brazil’s economy this year and predicted that the gross domestic product (GDP) will increase 2.1% in 2022, due to the positive evolution of the country and the expected favorable outlook, the institution advised on Thursday.

The Central Bank’s projections for the country’s economic growth in 2021 remained practically stable compared to its previous estimate (4.6%).

However, the GDP growth calculated by the issuer for 2022 in the Quarterly Inflation Report is released this Thursday surprised, since market estimates are lower.

According to the Central Bank’s latest Focus bulletin, which weekly gathers market forecasts, the Brazilian economy’s growth for next year will be 1.57% due to the energy crisis, the high dollar, the increasingly higher interest rates, and the presidential elections.

On the other hand, the issuer will continue to reactivate with the reduction of the pandemic and thanks to the positive outlook for agribusiness and the extractive industry, which will help to generate confidence in the country and increase the job market.

However, in the short term, “supply shocks” will affect activity and consumption, despite the recovery that will continue to be seen with reducing the pandemic.

According to the Central Bank, three “relevant risks” are still present: the water crisis “especially if restrictions on electricity consumption are necessary”; the evolution of the pandemic, and the actions that worsen expectations on the fiscal path.

The bank also forecasts that inflation in the South American power in 2021 will reach 8.3%, well above the 5.8% it had projected in June and well above the target it set for this year, which is 3.75%, with a tolerance interval of 1.5 percentage points, i.e., it might vary between 2.25% and 5.25%.

Inflation reached 0.87% in August and is already approaching double digits (9.68%) in the last 12 months, mainly driven by transportation prices and specifically by fuel prices.

High inflationary pressures have forced the Central Bank’s Monetary Policy Committee to close the expansionary monetary cycle and raise official interest rates, now at 6.25% per annum.

Last week, the Central Bank of Brazil decided to continue raising the benchmark interest rate by one percentage point per meeting this year and to increase the period in which it will maintain this policy to meet the 2022 and 2023 inflation targets.