Economy is doing much better than experts predicted – 12/28/2023 – Marcos Augusto Gonçalves

In the view of analysts and economists from financial institutions, 2023 began as a disaster announced. Dark clouds foreshadowed a scenario for the year of GDP stagnation, persistent rising inflation, rising future interest rates and lack of government control, with a threatening return to the most worrying patterns of the past.

Even in March, the expectations of the majority of experts, not just opinion, remained quite negative. And wrong. The median of the Focus bulletin, a consultation that the Central Bank makes to the oracle of its market peers, pointed to GDP growth of 0.84% ​​by the end of the year.

In view of the numbers released, influential analysts, in the comfortable task of honoring the bank and financial report, stated that this would be exactly the case and that there would be no reason to imagine anything different. Under Lula, growth would not even reach 1%.

We know today that GDP will close the year with an expansion of 3%.

At the first signs that expectations were broken, reactions came. “Ah, it was the agro”, some said in an almost accusatory tone. The “fault” was the super harvest, financed, in fact, by huge public resources. But, after all, didn’t economists and their models know what was happening in agriculture?

Soon signs of disinflation also came. Focus was once again surprised. “But the core resists, the core resists”, they whispered through the corridors of Faria Lima. To make matters worse, there was a significant resumption of business on the Stock Exchange, which ends the year with record points. At the same time, press headlines were approaching the record use of the “indicator surprises” formula. GDP surprises, IPCA surprises, Stock Exchange surprises…

Of course, better results do not guarantee a rosy outlook. But the approval of the tax reform, which will still require work, and the crucial proposals for the Treasury do not inspire pessimism. Risk assessment agencies, however dubious they may be, raised Brazil’s rating.

With the recent victories in Congress and new measures for revenue, Lula and his minister Fernando Haddad expanded the score at the end of the regulatory time and go to 2024 with a clear advantage. Yes, they will suffer demands on the zero deficit, which no one really expects (that’s fine, as long as the result is behaved), and the litany of cuts in the flesh will continue, with weeping and gnashing of teeth. Which is not bad, by the way, as a political counterpoint.

The specialists’ shootings in the water actually have a history of recurrences. For 2022, Jair Bolsonaro’s last year, the Pythonesses estimated GDP growth of 0.4% — and ended up at 2.9%.

Bernardo Guimarães addressed the topic in a column in this Sheet. He compared Focus’s history of mistakes on growth with what would be a reasonable uninformed guess, that is, the bet that GDP would increase the same as it had increased in the previous year. “An uninformed guess would be much more wrong. The difference, however, is not that big: the average error in market expectations is 58% of the average error in guesses”, he showed. He also recalled that “with the exception of 2017 and 2021, in the last ten years, the forecast errors of market expectations and uninformed guessing were very similar.”

The economist raises some hypotheses for the fiasco, but states that part of the explanation “is that we don’t understand much about what happens in the economy.” This is an intellectually honest and humble observation, which perhaps in itself is a good invitation to moderate the attention paid to such prognoses, which are, in fact, already starting to take risks again for 2024. After all, what really counts is the proof of the pudding.

LINK PRESENT: Did you like this text? Subscribers can access five free accesses from any link per day. Just click the blue F below.