GDP: understand why the economy should grow less in 2023 – 02/03/2023 – Market

The growth of the Brazilian economy this year should be below the high of 2.9% accumulated in 2022 by the GDP (Gross Domestic Product), say analysts. For now, projections point to an advance close to 1% in 2023.

The most pessimistic estimates are mainly associated with the lagged impacts of high interest rates, which make credit more expensive for families and companies. The more restrictive monetary policy became more evident as of the final stretch of last year, as GDP shrank by 0.2% in the fourth quarter.

It was the first retreat after five quarters in the black, according to data released this Thursday (2) by the IBGE (Brazilian Institute of Geography and Statistics).

According to analysts, the end of the economic reopening stimulus after the pandemic restrictions, the global slowdown and the indebtedness of families complete the list of factors that tend to curb GDP in 2023, the first year of the Luiz Inácio Lula da Silva government (PT ).

“The 2022 result was very good, with strong growth, but that should not be repeated in 2023. No basis shows that this will happen throughout this year”, says economist Juliana Trece, from FGV Ibre (Brazilian Institute of Economics of Getulio Vargas Foundation).

“The year 2023 should be much more challenging. Interest rates are at high levels, family indebtedness hit a record”, he adds.

Last year, GDP was driven by the service sector and household consumption. This movement came after the overthrow of pandemic restrictions.

The measures adopted by the Jair Bolsonaro (PL) government due to the elections, such as the expansion of the Auxílio Brasil program and tax cuts, also caused momentary effects, say economists.

“The last quarter of the year saw a shrinking GDP. This shows that the elements that made the economy grow in 2022 will not have repercussions in 2023”, evaluates economist Juliana Inhasz, a professor at Insper.

“Despite high interest rates, some policies managed to stimulate the economy, but they are not enough to return to a growth trajectory. It is not possible to continue growing in this way with the debt-ridden population the way it is today”, he adds.

Itaú-Unibanco projects growth of 1.3% in 2023, above the median of the Focus survey, by the Central Bank, of 0.84%. He also expects expansion of 1% in the first quarter of the year, driven by the good performance of agriculture, especially the soybean crop in the period.

Bank economist Natalia Cotarelli also points out that the institution’s activity indicator points to a stronger performance for both the consumption of goods and services at the beginning of the year.

“We have this first quarter stronger, but the perspective is to return to something closer to zero over the next quarters”, says Cotarelli.

“What has been weighing on this slowdown is the labor market showing some sign of weakness and the more contractionary monetary policy. These two factors will continue to weigh on activity in 2023.”

In a report, the consultancy MB Associados also draws attention to the decline in GDP in the fourth quarter of 2022. According to the analysis, the result indicates a loss of momentum in the economy.

“The reasons are relatively well known: high interest rates, the international scenario of high interest rates and a slowdown in growth, low commodities, especially oil and mining, and the end of the fiscal effects of former President Bolsonaro’s re-election attempt”, says the MB.

The consultancy foresees a “small” expansion of 1% for this year’s GDP. “Certainly the striking effect of impact on the economy this year will continue to be the interest rate”, he says.

While the service sector tends to lose steam, agriculture should have a positive highlight in 2023, according to economists. The projection is associated with the estimate of a record harvest this year, after a break in 2022.

“Although it does not have such a high weight in the economy, the expectation is that agriculture will have a strong result. Important products such as soy have growth prospects this year”, points out economist Juliana Trece, from FGV Ibre.

C6 Bank also predicts a 1% increase in GDP for 2023. According to Claudia Moreno, an economist at the bank, this performance “may be a little better” with the boost in the grain harvest and the social benefits that must be paid by the Lula government .

On the median, financial market analysts expect a rise of 0.84% ​​for GDP this year, according to the most recent edition of the Focus bulletin, released by BC (Central Bank) on Monday (27).

In February, the BC’s decision to maintain the basic interest rate (Selic) at 13.75% per year led to an offensive by Lula against the institution’s president, Roberto Campos Neto. The petista went so far as to say that the Selic level is a “shame”.

For Firjan (Federation of Industries of the State of Rio de Janeiro), the loss of GDP strength throughout 2022 “corroborates the challenges expected for this year”.

“Although there has been a slight improvement in the international scenario – due to the reopening of China and the better-than-expected adaptation to Europe’s energy crisis – the tight financial conditions, here and abroad, maintain the prospect of low growth” , says the organization.

The Goldman Sachs bank has revised its projection for GDP growth this year from 1.4% to 1.2%, after the release of the fourth quarter result and the downward revision of the figures for the two previous quarters. The institution highlights some “headwinds to activity” in the first half, such as tight monetary and financial conditions, household indebtedness, drop in job creation, weak consumer and business confidence and incipient credit recovery.

BNP Paribas raised its projection from 0.5% to 1.5%, due to more favorable prospects for agriculture and services in the first half of 2023. The institution says that the reopening of China, a more expansionist fiscal policy in Brazil and a stronger agricultural sector explain the upward revision. The bank estimates that the effects of the monetary policy will extend until 2024, so it revised its GDP projection for next year from 1.2% to 0.5%.