BC raises GDP growth forecast to 2.9% in 2023 and raises the chance of exceeding the inflation target at 67%

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Information is contained in the report for the third quarter of this year on the topic, released by the Central Bank. BC kept inflation estimates for this year stable at 5%. What is GDP and what are its impacts? The Central Bank raised its estimate for Gross Domestic Product (GDP) growth this year from 2% to 2.9%. The information is contained in the third quarter inflation report, released this Thursday (28). GDP is the sum of all goods and services made in the country, regardless of the nationality of those who produce them, and serves to measure the behavior of the Brazilian economy. If GDP grows, it means that the economy is doing well and producing more. If GDP falls, it means the economy is shrinking. In other words, consumption and total investment is lower. However, a rise in GDP does not always equate to social well-being. The increase in the projection comes after the announcement that the Gross Domestic Product (GDP) grew 1.9% in the first quarter of this year and 0.9% in the second quarter (from April to June). In both cases, projections were above financial market estimates. “The revision results from the high positive surprise in the second quarter and, to a lesser extent, slightly more favorable forecasts for the evolution of industry, services and household consumption in the second half of the year”, informed the Central Bank. With the increase, the BC’s projection for the growth of the Brazilian economy this year came to be in line with the expectations of the financial market – which saw, last week, an increase of 2.92% for GDP in 2023. The result for this year’s GDP estimated by the BC will also represent, if confirmed, stability in relation to last year’s level – when expansion was 2.9%. The Central Bank also projected an economic expansion of 1.8% for the year 2024. This is the first time that the institution has released an official projection for next year’s GDP. Campos Neto This Wednesday (27), the president of the institution, Roberto Campos Neto, stated in a public hearing in the Chamber of Deputies that GDP would grow 3% this year and 2% in 2024. With this, he rounded off the official projections released this Thursday by the institution. At the time, Campos Neto stated that market economists have been more pessimistic in their projections about GDP, in relation to the result determined later. “Which makes us think that the structural reforms of several governments have had an impact, and that potential growth can be revised upwards,” he declared this Wednesday. Inflation For official inflation, measured by the Broad National Consumer Price Index (IPCA), the Central Bank maintained its estimate for 2023 at 5%. “In terms of estimated probabilities of inflation exceeding the limits of the tolerance interval, the reference scenario highlights the increased probability of inflation remaining above the upper limit in 2023, which rose from around 61% in the report previous [divulgado em junho] to 67% in this report”, informed the BC. Defined by the National Monetary Council (CMN), the inflation target for this year is 3.25% and will be considered formally met if it oscillates between 1.75% and 4.75% . The financial market estimated, last week, that inflation measured by the IPCA will total 4.86% this year. For 2024, the BC’s projection for the IPCA rose from 3.4%, in June, to 3.5% in document released today. Next year’s inflation target is 3%, and will be considered met if it oscillates between 1.5% and 4.5%. For the year 2025, the Central Bank’s inflation estimate remained stable at 3.1%. For that year, the inflation target is 3%, which can fluctuate between 1.5% and 4.5%. Third year in a row of blowout If it is confirmed that the target is not reached in 2023, this will be the third year followed by a burst. In 2021, official inflation totaled 10.06%, the biggest increase since 2015, and was well above the target ceiling for 2021, which was 5.25%. Last year, the IPCA totaled 5.79 %, also above the ceiling of the target system, which was 5% in 2022. Inflation targets are the basis for the Central Bank’s decisions on the interest rate. When inflation is high, the BC raises the Selic. When inflation estimates are in line with targets, the Central Bank can reduce the economy’s basic interest rate. After two reductions, the Selic rate is currently 12.75% per year. The projection of financial market analysts is that the rate will continue to decline in the coming months, ending 2023 at 11.75% per year. By the end of 2024, the projection is that Selic will fall to 9% per year.

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