Brazil’s Economic Growth Forecast Rises to 0.87 percent This Year

RIO DE JANEIRO, BRAZIL – The financial market increased the projection for economic growth and reduced the inflation estimate for this year.

According to the Focus bulletin, a survey released every week by the Central Bank (BC), the forecast for the expansion of Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – was adjusted from 0.80 percent to 0.87 percent in 2019.

According to the survey, the forecast for 2020 remained at 2.10 percent. For 2021 and 2022 there was also no change in the estimates of 2.50 percent.

The estimate of inflation, calculated by the National Broad Consumer Price Index, fell from 3.65 percent to 3.59 percent this year. For the following years there were no changes in the projections: 3.85 percent in 2020, 3.75 percent in 2021, and 3.50 percent in 2022.

The inflation target set by the National Monetary Council is 4.25 percent in 2019, 4 percent in 2020, 3.75 percent in 2021, and 3.5 percent in 2022, with a tolerance interval of 1.5 percentage points up or down.

To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, which is currently at 6 percent.

When Copom reduces the Selic rate, the trend is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and stimulating economic activity.

When the Monetary Policy Committee increases the Selic, the purpose is to contain the heated demand and this causes effects on prices because higher interest rates make credit more expensive and stimulate savings.

For the financial market, by the end of 2019, Selic will be at 5 percent per year. By the end of 2020, the estimate is 5.25 percent per year. By the end of 2021 and 2022, the forecast remains at 7 percent per year.

The forecast for the dollar rate at the end of this year rose from R$3.80 to R$3.85 and, for 2020, from R$3.81 to R$3.82.