Oxford Economics: New pandemic aid will boost Brazil’s GDP to 3.8% in 2021

RIO DE JANEIRO, BRAZIL – The second round of emergency aid will boost Brazil’s GDP growth by 0.2 percentage point to 3.8% this year, writes Marcos Casarin, Oxford Economics’ chief economist for Latin America.

The company estimates that households will spend half of the R$44 (US$7.6) billion in stimulus payments received during 2021, and the rest will be saved or used for debt. This will increase consumption by 0.4% in the first quarter and by 0.8% in the second quarter.

The second round of aid will have a fiscal impact that will likely increase Brazil’s 10-year bond yields by 25 basis points, keeping them above 9%.

Economists raised the bond yield projection by a total of 75 basis points to factor in additional fiscal deterioration, rising US yields, institutional risk after leadership changes at Petrobras, political noise about Lula’s potential return and higher inflation.

Oxford Economics has advanced its projection of a SELIC increase from May to March.

“Although we believe that more fiscal support will assist the economy in recovering faster, we are not sold on its payoff in terms of higher yields and a tightening of monetary policy,” Casarin wrote.

“Brazil was experiencing the fastest recovery in Latin America and still had substantial accumulated savings, so nothing, other than a decline in the president’s popularity, suggested that more help was truly essential.”

“Relaxing the fiscal rule again for a small GDP gain in the short term at the cost of higher borrowing costs in the long term does not seem like a fair trade-off to us.”

Source: InfoMoney

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