IMF improves growth prospects for Brazil this year but reduces them for 2023
RIO DE JANEIRO, BRAZIL – The International Monetary Fund (IMF) improved the estimate for growth in Brazil’s economy this year but worsened the scenario for next year, warning about the impact of high inflation.
When updating the data of its Global Economic Prospect report – the first after Russia’s military operation in Ukraine on February 24 – the IMF now sees growth in Brazil’s Gross Domestic Product (GDP) of 0.8% in 2022, against the 0.3% forecast in January.
On the other hand, it cut expectations for 2023 by 0.2 percentage points, projecting an economic expansion of 1.4%.
The IMF is much more pessimistic than the Ministry of Economy, which projects that the Brazilian economy will grow 1.5% this year, rising to 2.5% in 2023.
The IMF figures for Brazil are also much weaker than those for Latin America and the Caribbean, with growth in the region estimated by the institution at 2.5% for both this year and next.
For the Emerging Markets and Developing Economies group, the Fund’s outlook is for expansion of 3.8% and 4.4% in 2022 and 2023, respectively. In the January report, these estimates were 4.8% and 4.7%.
For the IMF, even though the Latin American and Caribbean region has less direct connections to Europe, which is suffering from the war in Ukraine, it should also be more affected by inflation and monetary policy tightening.
“Brazil has responded to higher inflation by raising interest rates by 9.75 percentage points over the past year, which will weigh on domestic demand,” the Fund said in the report, warning that reductions in growth estimates for the United States and China should also impact the outlook for those countries’ trading partners in the region.
High inflation has become a major concern in Brazil, where the 12-month rate has surpassed 11% under the impact of rising fuel prices on the back of gains in international oil prices amid fears of supply constraints from the war in Ukraine.
The Central Bank raised the basic interest rate Selic from the minimum of 2% to the current 11.75%, and more hikes are expected with the IPCA accumulating an advance of 11.30% in the 12 months to March the highest rate since October 2003.
The IMF estimates inflation of 8.2% in Brazil this year and 5.1% in 2023, well above the targets -3.50% in 2022 and 3.25% in 2023 measured by IPCA, both with a tolerance margin of 1.5 percentage points.
The Fund also calculates an unemployment rate in the country of 13.7% and 12.9%, respectively, this year and next, with current account deficits of 1.5% and 1.6% of GDP.
With information from Reuters
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