GDP: Itaú raises growth forecast – 06/14/2023 – Market

Itaú sharply raised this Tuesday (13) its projection for the expansion of economic activity in Brazil this year, in line with the greater optimism of other financial institutions, and revised downwards its forecasts for consumer inflation, still forecasting anticipation of a “gradual” easing of monetary policy.

The private bank now expects GDP growth in 2023 to be 2.3%, nearly 1 percentage point above the previously expected 1.4% rate, “given higher-than-expected growth in the first quarter and the expectation that, despite the effects of monetary tightening, consumption will remain supported by income in the coming quarters”, according to the report.

Data from the IBGE showed earlier this month that the Brazilian economy returned to growth in the first quarter of 2023 and exceeded expectations with the best result for the activity since the end of 2020, reflecting the strongest performance of the agricultural sector in almost three decades.

In the wake of the data, many other institutions revised upward their official projections for full-year GDP.

For 2024, Itaú also increased its expectation for economic growth, from 1.0% to 1.5%.

With regard to inflation, Itaú revised downwards the IPCA high expectation in 2023 to 5.3%, from 5.8% before, “incorporating lower prices of tradable products and a 5% cut in gasoline prices at the refinery”.

For 2024, the bank slightly adjusted the inflation forecast to 4.4% from 4.5%.

“We hope that the reduction of inflationary pressures and a prudent decision on the inflation targeting regime will allow the Copom to anticipate the easing cycle, with a cut of 0.25 pp, in September, and two cuts of 0.50 pp in November and December meetings, which would lead the Selic rate to 12.50% at the end of 2023”, estimated Itaú in the report, adding that “the eventual easing of monetary policy should occur gradually.”

“Fiscal adjustment is still challenging and monetary policy in developed countries continues to move into contractionary territory. These factors call for caution with medium-term inflation projections and recommend a parsimonious conduct of monetary easing,” the bank said.

For 2024, Itaú maintained a Selic forecast of 10%, given a slow disinflation in service prices.

The prime rate is currently at 13.75%.