Economy slows down in 2024 with less agriculture and more investments – 12/20/2023 – Market

The year 2024 should be marked by the slowdown in the Brazilian economy, accompanied by falling inflation and lower interest rates. This scenario could be more or less benign depending mainly on two factors: the continuity of the global disinflation process and the direction of fiscal policy in Brazil.

Economists heard by Sheet assess that a reaction by the federal government to lower growth in the first half of the year through increased spending, or a review of fiscal rules, could hinder the interest rate cut process promoted by the Central Bank.

This movement could compromise the performance of a GDP (Gross Domestic Product) that should be driven more by credit in 2024, with a positive impact on investments.

In 2023, growth was driven mainly by the increase in family income and the performance of agriculture, a sector that is expected to contract next year.

Rafaela Vitoria, chief economist at Banco Inter, states that 2024 should start similar to the end of 2023, with weak activity, but a recovery in activity is expected throughout the year due to the return of credit.

“As the economy begins to feel the fall in interest rates, we may see a resumption of credit and investment, especially from the second half of 2024”, he states.

It projects a slowdown in growth from 3% to 1.8% next year, numbers above the projections in the Central Bank’s Focus bulletin, of 2.92% and 1.51%, respectively.

The economist states that family consumption could improve in the second half of 2024, compared to what should be seen in the same period in 2023. And investment, after a negative performance this year, should see some recovery next year.

“You will see a recovery in investment next year, due to this increase in credit in the economy”, says Luis Otávio Leal, chief economist at G5 Partners, who cites the drop in interest rates, the Desenrola program and the PAC (Programa Growth Acceleration) as factors that will contribute to this result.

For him, the expectation is that inflation will continue to slow down in Brazil and a more favorable external scenario, with practically all central banks in the world reducing interest rates over the next year, which allows the Brazilian Central Bank to continue cutting the base rate up to 9% per year.

Leal projects a slowdown in GDP from 3% this year to 2.1%. “We will have a year in which, numerically, growth will be lower, but in terms of structure, performance will be better.”

For him, the biggest risks for next year are a more complicated political scenario in the USA due to the presidential elections, which will bring turbulence to the financial market, and the fiscal issue in Brazil. This last point is a risk, which may be greater or lesser depending on the external scenario.

“If you have a fiscal problem in Brazil, with a good external scenario, it is possible that people will overlook it. It will be bad for the long-term perception, but it ends up not being reflected in the short-term result”, says the economist.

Silvia Matos, coordinator of FGV Ibre’s Macro Bulletin, also sees a recovery in investment next year, but it may take longer to appear than the government wants and lead to an acceleration in public spending — and a review of fiscal targets.

She states that Brazil grew above its potential without generating inflation in recent years, because there was some fat to burn, but that this space has decreased, with a reduction in idleness in the economy and inflation that has slowed down less than would have been necessary.

The economist projects growth of 2.9% this year and 1.4% in 2024.

“I think we will still have a lot of fiscal tension. It’s a municipal election year. Minister Fernando Haddad [Fazenda] managed to win this year by not changing the deficit target and inflation target. There were several victories. But the election scenario is more tense,” he says.

Rafaela Vitoria, from Banco Inter, also cites the risk of the government wanting to further stimulate the economy, especially if an expected drop in GDP in this or the next quarter is confirmed.

“If you want to stimulate demand a lot without having a more favorable investment environment, you will generate inflation up front. This is a big risk for next year.”