Economy: IMF sees growth of more than 2% in Brazil – 07/25/2023 – Market

The International Monetary Fund improved its estimate for growth in Brazil’s economy this year after the strong performance in the first quarter, but downgraded the outlook for 2024 in a report released on Tuesday.

In the update of its Global Economic Perspective report, the IMF went on to see an expansion of Brazil’s Gross Domestic Product of 2.1% in 2023, an increase of 1.2 percentage points compared to the April estimate. However, for 2024 the IMF projection was reduced by 0.3 percentage points, to 1.2%.

According to the IMF, the upward revision of this year’s estimate is due to “the increase in agricultural production in the first quarter of 2023, with positive repercussions on activity in services”.

The Brazilian economy beat expectations in the first quarter with a growth rate of 1.9%, reflecting the strongest performance of the agricultural sector in almost three decades. But the restrictive monetary policy should still weigh more heavily on activity ahead, containing the expansion.

After this GDP result, the IMF projections made in April were criticized by President Luiz Inácio Lula da Silva, who said he wanted to prove that the Fund was wrong about its perspective for the country’s growth.

But even with the revision, the IMF estimate for 2023 is still a little more pessimistic than that of the Ministry of Finance, which this month started to calculate a growth of 2.5% for GDP this year, against a forecast of 1.9% made in May. For 2024, the portfolio presented an estimate of a rise of 2.3%, the same as in May.

Latin America

Brazil’s expected better performance was one of the reasons behind the 0.3 point improvement in the estimate for growth in Latin America and the Caribbean, to 1.9%, in 2023.

It also reflects stronger growth expected for Mexico, with an increase of 0.8 percentage points in the estimate, to 2.6%, which therefore represents a better performance than Brazil, due to the post-pandemic recovery in services and amid the resilience of demand from the United States.

For 2024, the forecast for the Latin America and Caribbean region remained at 2.2% expansion.

As for the group of Emerging Markets and Developing Economies, of which Brazil is a part, the IMF improved its projection of expansion in 2023 by 0.1 percentage point, but worsened that of 2024 by the same magnitude, to, respectively, 4.0% and 4.1%.

Body raises global growth forecast, sees lingering challenges

The IMF raised its 2023 global growth estimates due to resilient economic activity in the first quarter, but warned that persistent challenges were hurting medium-term prospects.

The fund said inflation is falling and acute stress on the banking sector has eased, but the balance of risks facing the global economy remains tilted to the downside and credit is tight.

The global lender said it now projects real global GDP growth of 3.0% in 2023, up 0.2 percentage points from its April forecast, but left its outlook for 2024 unchanged, also at 3.0%.

The 2023-2024 growth forecast remains weak by historical standards, well below the 3.8% annual average seen in 2000-2019, largely due to weakening manufacturing in advanced economies, and could remain at that level for years.

“We’re on the right track, but we’re not out of the woods,” IMF chief economist Pierre-Olivier Gourinchas told Reuters in an interview, noting that the update was largely driven by first-quarter results.

“What we’re seeing when we look five years from now is actually closer to 3.0%, maybe a little bit above 3.0%. This is a significant slowdown compared to what we had pre-Covid.”

This is also related to the aging of the global population, especially in countries like China, Germany and Japan, he said. New technologies may boost productivity in the coming years, but this, in turn, could hurt labor markets.

The outlook is “broadly stable” in emerging markets and developing economies for 2023-2024, with 4.0% growth expected in 2023 and 4.1% in 2024, the IMF said. But he noted that the availability of credit is restricted and that there is a risk that debt distress spreads to a wider group of economies.

The world is in a better place now, the IMF said, noting the World Health Organization’s decision to end the global health emergency surrounding Covid-19, and with shipping costs and delivery times now back to pre-pandemic levels.

“But the forces that weighed on growth in 2022 persist,” the IMF said, citing still-high inflation that is eroding households’ purchasing power, higher interest rates that have raised the cost of borrowing and tighter access to credit as a result of banking tensions that erupted in March.

“International trade and manufacturing demand and production indicators point to further weakness,” the IMF said, noting that the excess savings accumulated during the pandemic is diminishing in advanced economies, especially the United States, implying “a tighter buffer to buffer against shocks”.

While immediate concerns about the health of the banking sector – which were most acute in April – have eased, financial sector turmoil could resume as markets adjust to further monetary tightening from central banks, he said.

The impact of higher interest rates was especially evident in the poorest countries, raising debt costs and limiting the space for priority investments. As a result, production losses compared to pre-pandemic forecasts remain large, especially for the world’s poorest nations, the IMF said.

low inflation

The IMF projected that headline inflation will decline to 6.8% in 2023 from 8.7% in 2022 to 5.2% in 2024. But core inflation is expected to decline more gradually, reaching 6.0% in 2023 from 6.5% in 2022 and falling to 4.7% in 2024.

Gourinchas told Reuters it could take until late 2024 or early 2025 for inflation to fall to central bank targets and the current cycle of monetary tightening to end.

The IMF has warned that inflation could rise if the war in Ukraine escalates, citing concerns over Russia’s withdrawal from the Black Sea grain initiative, or if more extreme temperature rises caused by the El Niño weather pattern raise commodity prices. That, in turn, could trigger further rate hikes.

The IMF said world trade growth is slowing and will reach just 2.0% in 2023 before rising to 3.7% in 2024, but both growth rates are well below the 5.2% recorded in 2022.

The IMF raised its outlook for the United States, the world’s largest economy, forecasting growth of 1.8% in 2023, up from 1.6% in April, with the job market remaining strong.

The Fund left its growth forecast in China, the world’s second-largest economy, unchanged at 5.2% in 2023 and 4.5% in 2024. But it warned that China’s recovery was underperforming and a deeper contraction in the real estate sector remained a risk.

Eurozone countries are expected to grow 0.9% in 2023 and 1.5% in 2024, both up 0.1 percentage points compared to April.