Brazil: slowdown in economic activity expected

RIO DE JANEIRO, BRAZIL – After growing around 4.5% in 2021, the forecasts are not encouraging for the Brazilian economy in 2022. According to a survey conducted by the Central Bank, the country’s GDP will stagnate this year.

The main cause of the abrupt slowdown in activity will be the sharp rise in the interest rate, which currently stands at 9.25% and will reach 11.75% in the coming months. Analysts anticipate a first half of the year with declines and a second half slightly recovering, with a warning on the impact on local industry demand.

The forecasts of consulting firms surveyed by the monetary entity have been cutting their growth perspectives for 2022 every week. In mid last year they were forecasting 3.5%, this figure was closer to 1% by the end of 2021. But the outlook has worsened since then and the latest official Focus report indicates that the rise would reach only 0.29%.

“After the rebound seen in the world in 2021, Brazil is currently showing growth close to 0% for this period. This is explained by the government’s decision to set the inflation target back on track with a rate hike,” ABECEB director Gustavo Perego said.

He also stated that “If commodity prices do not drop, we will see a small rebound in the second half of the year. We have to take into account that there will be elections next year, so from July onward there may be extra stimuli to prevent activity from contracting.”

Inflation is precisely another of the main problems affecting the Bolsonaro government’s economy. The consumer price index closed 2021 with 10.6% growth, the highest since 2015, well above expectations of private consulting firms and more than double the target set by the Central Bank, whose limit was 5.25%.

In this scenario and with an international context in which several countries are taking similar decisions, Brazil is heading for a sharp rise in the benchmark rate, which will climb from 9.25% to 11.75% per year. “This measure will have a strong impact mainly during the first half of the year,” Perego said.

According to the Central Bank of Brazil’s report, the forecast for the foreign front is reserved. Although the account will leave a positive result, it is estimated that the surplus will be lower than last year, close to US$56 billion. The drop will be mainly due to a fall in the prices of relevant products in the export basket.

Meanwhile, according to analysts consulted by the monetary entity, the fiscal result will show a primary deficit of 0.96%.