Santander sees Brazil’s economy performing “better than expected”

Santander’s Brazilian subsidiary notes that Brazil’s economy is performing “better than expected” this year, even though it believes it is likely to contract in the short term in the face of rapidly rising official interest rates.

“This year’s growth will be better than we all imagined at the beginning, but it is difficult to believe that, with rates going to a high 13% or low 14%, there will not be a contraction,” said Santander Brazil’s president, Mario Leão, in a telematic meeting with journalists on Thursday.

In this sense, he reinforced that it is “unlikely that there will not be a contraction” of the largest economy in Latin America from the second half of 2022 and that it could have a sequence in the first six months of 2023.

That is due to the steep rise in the basic interest rate that the Central Bank of Brazil has been pushing for the last year and a half to contain galloping inflation that is currently close to 12% year-on-year (y/y).

Official rates are today in Brazil at 13.25% y/y, their highest level since the end of 2016.

Despite that challenging context, Santander Brazil’s chief financial officer (CFO), Angel Santodomingo, forecasts economic growth in the country of between 1.5% and 2% this year, when just a few months ago, the consensus was that it would expand below 1%.

The Brazilian economy “is performing better than expected, and by 2023, I think it will be important to control inflation. If the country controls it, we may have movements in interest rates, and there could be higher growth,” he added.

The Brazilian government expects a Gross Domestic Product (GDP) growth of 2% in 2022, almost in line with the 1.9% forecast by the financial market and the 1.7% pointed out by the International Monetary Fund (IMF).

With information from EFE