government reduces growth projection

The federal government reduced its projection for the growth of the Brazilian economy in 2023. The expectation fell from 3.2% to 3%, according to a report released this Tuesday (21) by the Ministry of Finance.

According to the Macrofiscal Bulletin, from the Secretariat of Economic Policy (SPE), the drop is related to the revision of the forecast for the third quarter – which dropped from a slight increase of 0.1% to stability (0%) – and “projections less optimistic for the services sector for the rest of the year”.

The SPE also expects lower growth in 2024. Its estimate was reduced from 2.3%, in the previous bulletin, to 2.2%. “The change reflects the increase in uncertainty in the external environment, both from the point of view of the monetary policy of central countries and the possibility of worsening global geopolitical conflicts”, says the bulletin.

The Macrofiscal Bulletin also presents the government’s new projections for inflation. On the one hand, the expectation for the IPCA in 2023 fell from 4.85%, in the previous report, to 4.66% now. On the other hand, the forecast for next year rose from 3.4% to 3.55%.

According to the SPE, “the disinflation process occurred faster than initially projected” this year, while the estimate for 2024 was affected “by the ICMS readjustment announced by the states, in addition to specific changes in the projected scenario for the exchange rate and for commodity prices.”

Last month, the council that brings together state finance secretaries announced an increase in the ICMS on gasoline, diesel and cooking gas starting in February. And, this Tuesday, governors from the South and Southeast informed that the tax reform forces them to raise the current ICMS levels. Six states in these regions, which currently charge a general rate between 17% and 19%, are considering increasing the tax to 19.5%.

Recent numbers show worsening of the economy

The worsening of the government’s projection for the 2023 GDP comes after the release of weak numbers on the recent performance of the Brazilian economy. Last week, the Central Bank reported that the Economic Activity Index (IBC-Br) fell 0.64% in the third quarter, compared to the second.

The financial market began to lower its expectations for GDP in October. From the peak of 2.92% reached in the middle of last month, the median expectation of banks and consultancies fell to 2.85% in the most recent edition of the BC’s Focus bulletin, released this Monday (20).

In parallel, confidence levels in the economy worsened, both among companies and consumers.

In October, a survey by Genial Investimentos/Quaest showed that 65% of respondents believe that the economic scenario has remained the same or worsened in the last 12 months. And optimism regarding the next 12 months fell from 59% in August to 50%. The evaluation of the work of the Minister of Finance, Fernando Haddad, also worsened.

“In the year, the lower growth expected for the services sector was partially offset by an increase in the growth projection for industry”, says the SPE bulletin.

“For the agricultural sector, the growth projection in 2023 remained at 14.0%. For industry, expected growth increased from 1.5% to 1.9%, while for services the projection fell from 2.5% to 2.2%”, continues the text.