Brazil to face downward corrections of economic projections for 2022

RIO DE JANEIRO, BRAZIL – The Brazilian economy is facing a growing risk of downward corrections for 2022 after posting lower-than-expected GDP growth in the third quarter and plunging into uncertainty over the potential economic impact of the new variant of the coronavirus.

“The main driver underpinning Brazilian GDP is the services sector. The performance of this sector will very likely guarantee positive GDP growth this year and also in 2022, but any factor impacting it will affect the economy’s performance,” Banco Alfa chief economist Luis Otavio Leal said. The expert projects 4.8% growth in activity this year but only 0.5% in 2022.

The services sector accounts for 2/3 of Brazil’s GDP. In the third quarter the Brazilian economy entered into technical recession after posting a second consecutive quarter of contraction and slipping 0.1% compared to the second quarter and 0.4% between the first and second quarters, according to the IBGE (Brazilian Institute of Geography and Statistics). The economy grew 4.0% in the third quarter compared to the same period last year.

CONCERNS

The services sector is also at risk due to persistent inflation, which has led the Central Bank to raise interest rates several times.

The risks associated with the Omicron variant of the coronavirus worldwide are another cause for concern, as an increase in infections and deaths could force governments to reintroduce social distancing measures.

“We will revise our forecast for 2022 once we have more definitive data on the Omicron variant. But, needless to say, the risks to our current projection (1.3%) are firmly on the downside,” said Capital Economics chief emerging markets economist William Jackson.