Itaú has improved its outlook for Brazil’s economy and fiscal performance for the next two years, yet expects a tougher inflation scenario and a higher Selic rate by year-end.
The bank now sees Brazil’s GDP growing by 2.0% in both 2024 and 2025, up from earlier estimates of 1.8%.
Mario Mesquita, Itaú’s Chief Economist, links this uplift to a brighter perspective on credit distribution.
He highlights potential consumer spending increases due to recent real minimum wage hikes and job market resilience.
Moreover, Itaú adjusted its forecast for Brazil’s primary budget deficits to 0.7% of GDP in 2024 and 0.9% in 2025, better than previous forecasts.
Mesquita acknowledges that improved economic activity slightly lessens the primary deficit.
However, he cautions about ongoing fiscal risks, given uncertainties around government spending cuts and the revenue effects of 2023’s policy measures.
Inflation expectations for 2024 remain at 3.6%, but Mesquita highlights concerns over service sector price pressures.
In 2025, inflation is forecasted at 3.5%, exceeding the target, attributed to skewed long-term expectations and a tight labor market.
Itaú raised its end-2024 Selic forecast to 9.25% from 9.00%, expecting rate stability amid service inflation worries.
This adjustment reflects the interconnectedness of domestic economic activities, government fiscal strategies, and global financial trends.
It underscores the importance of monitoring inflation, wage growth, and labor market conditions in shaping monetary policy decisions.