Central Bank raises its projection for Brazil’s GDP growth this year from 2.7% to 2.9% and sees lower growth in 2023

The Brazilian Central Bank (BC) has revised the projection for economic growth this year from 2.7% to 2.9%.

The Gross Domestic Product (GDP) estimate, the sum of all goods and services produced in the country, is in the Inflation Report released today (Dec. 15) by the Central Bank.

For 2023, the GDP growth projection remains at 1%.

According to the report, the high GDP projection this year reflected the “increase in the forecast for the services sector, partially offset by a decrease in the estimates for agriculture and livestock and industry.

“The projection for agriculture and cattle-raising was changed from stability to a 2% decrease, reflecting the third quarter’s result,” says the report

The report adds that the decrease in comparison with the previous quarter surprised the Central Bank, which expected a positive result, influenced by the relatively weak base of the second quarter.

The result is under the impact of the partial break in the soybean crop, a crop with harvest concentrated in the first two quarters of the year – and by increases in the production of oranges and cotton, crops with expressive participation in the third quarter.

“However, setbacks in the production of sugarcane and manioc overcame these factors, leading to a decline in activity in the quarter and a worsening in the estimate for the year,” he added.

In industry, the projection was revised from 2.4% to 1.9%, with drops in the forecasts for all sectors except construction.

In services, the estimate for growth in 2022 went from 3.4% to 4.1%, influenced by the third-quarter result and the revision of the historical series.

“The tertiary sector has shown resilience, returning to grow at a robust pace in the third quarter.”

“The increases in the sector were disseminated and of high magnitudes, equal to or greater than 1%, except for trade activity, affected by the cooling of retail and industrial production.”

For the coming quarters, adds the Central Bank, “a more disseminated cooling is expected in the sector, reflecting the perspective of deceleration in household consumption, in an environment of higher interest rates and a slowdown in the labor market.

DEMAND

The estimate for the variation in household consumption went from 3.9% to 4.2%, government consumption from 0.7% to 1.6%, and gross fixed capital formation (GFCF – investments) from -0.4% to 0.7%.

Exports and imports in 2022 should vary, from 4% and stability, against projections of 1.5% and -2.5%.

These estimates reflect “higher than expected increases in the volume of exports and imports of goods and services”.

NEXT YEAR

For 2023, the growth projection was influenced by the “maintenance of the cooling perspective in domestic demand and the more cyclical components of supply”.

The report also says that “discussions about the 2023 budget point to a greater expansion of primary expenditures [expenditures related to public services, without considering loan payments] than that foreseen in current legislation, especially those associated with transfers to families [such as Bolsa Família].

The Central Bank adds that increased government spending can help sustain the demand for goods and services, especially in the short term.

On the other hand, “additional fiscal stimuli, especially if they impact the perception of public debt sustainability, can hurt financial conditions and economic growth.”

“Therefore, the final outcome depends on the combination of the magnitude of fiscal expansion in the short term and the exact wording of the new fiscal framework.”

SUPPLY AND DEMAND

On the supply side, the maintenance of the central projection for the GDP variation in 2023 reflected decreases in the forecasts for agriculture and cattle-raising and industry, from 7.5% and 0.4%, respectively, to 7% and stability, and an increase in the forecast for services, from 0.6% to 0.9%.

Regarding domestic demand, the projections for household consumption, government consumption, and GFCF were raised from 0.7%, 1.0%, and -0.5%, respectively, to 1.2%, 1.1% and 0.3%.

Estimates for changes in exports and imports were practically unchanged, going from 3% to 2.8% and from 0.5% to 0.7%, respectively.

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