Brazil’s government maintains GDP growth projections until 2025

RIO DE JANEIRO, BRAZIL – Despite raising this year’s economic growth forecast from 3.5% to 5.3%, the Ministry of Economy’s Secretariat of Economic Policy (SPE) has maintained its projections for GDP growth until 2025 at approximately 2.5%.

According to the report, “the activity projections for this and the coming years become particularly sensitive to the release of data and to the unfolding of the impact of Covid-19 and the vaccination process, especially considering their effects on long-term GDP. The energy sector scenario is also another component increasing unpredictability.”

“The increase in projections for the current year is owed to the incorporation of the first quarter 2021 positive result which exceeded forecasts. Furthermore, a higher inter-annual growth is projected for the 2nd quarter 2021 and there are good perspectives for the second semester, given the advance of vaccination and the reduction of social distancing, resulting in higher growth in the services sector,” reads the Macrofiscal Report released by the SPE.

According to the document, the nominal GDP projected for 2021 stands at R$8.6 (US$1.7) trillion, 16.0% higher than in 2020. This figure is due to the increase in the current year’s real growth to 5.3% and acceleration of the deflator to 10.2%, according to the report.

“The high degree of uncertainty should be noted, due to the effects of the pandemic and the increased hydrological risk. The methodology used for the projection as of Q2 2021 and for the subsequent quarters, is based on small and medium-sized econometric models, trend and cycle models, in addition to machine learning estimations,” the document highlights.

The report further points out that, as with any projection, there is inherent uncertainty in estimates for the projection horizon, but the Covid-19 pandemic period has exacerbated these challenges.

“Thus, using the forecast variance of the models considered, it is possible to estimate different scenarios for activity growth, segmenting them into different percentiles. It is observed that the variance of estimates increases with each year ahead, which suggests that growth projections tend to be revised as the economy experiences new shocks,” the document notes.

Source: Valor

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