Brazilian Economy Expected to Grow 2.5 Percent in 2020, Says CNI

RIO DE JANEIRO, BRAZIL – The Brazilian economy will continue to grow again in 2020, with an increase of 2.5 percent, after growing 1.2 percent this year.

The projection was released yesterday, December 17th, by the National Confederation of Industry (CNI), in the Brazilian Conjunctural Economy Report.

According to the organization, the Gross Domestic Product (GDP, the sum of all goods and services produced in the country) will be driven by the growth of industrial GDP. The sector is expected to grow 2.8 percent, according to the CNI.

The CNI believes that economic activity will also be driven by a 6.5 percent increase in investments in 2020. For this year, the industrial GDP is expected to grow 0.7 percent and investments 2.8 percent.

The forecast for household consumption is 1.9 percent in 2019 and 2.2 percent in 2020.

According to the study, the economic upturn in the second half of this year is a sign that there will be sounder growth in the next 12 months.

According to the CNI, the most recent data point to an increase in consumption as a result of the drop in the basic interest rate, the SELIC, and the gradual rebound in the labor market.

Reforms

For the confederation, the reforms implemented in 2019, in particular the Social Welfare reform, have contributed to a more favorable environment for increased investment, production and consumption.

However, the organization advocates “greater speed and ambition in the pro-competitiveness agenda, with a focus in the tax reform”. A further indication is that additional reforms should be carried out to curb the growth in public spending and promote lasting fiscal balance.

Public Accounts

The CNI projects that the primary deficit (expenditures higher than revenues, without considering public debt interest expenditures) should represent 0.9 percent of GDP in 2019, and 1.3 percent of GDP in 2020.

The gross public debt should reach 78.2 percent of GDP in 2019 and 79.3 percent of GDP next year.

Inflation and employment

Inflation, as measured by the Broad National Consumer Price Index (IPCA), is expected to end 2019 at 3.78 percent and 2020 at 3.70 percent, below the target for the fourth consecutive year.

The inflation target, set by the National Monetary Council, is 4.25 percent in 2019, and four percent in 2020, with a tolerance interval of 1.5 percentage points up or down.

The main instrument used by the Central Bank to control inflation is the basic interest rate, the SELIC.

When the Central Bank’s Monetary Policy Committee (Copom) reduces the Selic rate, the trend is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and boosting economic activity.

The CNI’s expectation for the SELIC is that it will remain at the level established at the last COPOM meeting, last week, at 4.5 percent a year throughout 2020.

The CNI expects the unemployment rate to drop from 12.3 percent, a level reached in 2018, to 11.9 percent this year and 11.3 percent in 2020.

Source: Agência Brasil