Growth in 2023 surprises, but caution remains – 04/28/2023 – Market

The economic indicators for the first quarter, presented so far, surprised economists positively. As a result, banks are already starting to revise their GDP (Gross Domestic Product) growth projections upwards in 2023.

After the release of the IBC-Br (BC Economic Activity Index), this Friday (28), Santander, Bradesco and ABC Brasil changed their forecasts for Brazil’s growth in the year. Bradesco is the most optimistic, changing its projection from 1.5% to 1.8%.

This Friday, the BC released the IBC-Br (Central Bank Economic Activity Index), which recorded growth of 3.32% in February compared to the previous month, showing seasonally adjusted data for the indicator that is a GDP indicator (Product Gross Domestic).

It was the highest expansion rate since June 2020 (+4.86%), following the intense declines caused by the stoppages due to the Covid-19 pandemic.

In a report, Bradesco’s Economic Department, led by Fernando Honorato, states that the job market remains heated, which should sustain household income and consumption in 2023. “At the same time, the agricultural GDP should be even stronger than we previously predicted”, says Bradesco.

Gabriel Couto, an economist at Santander Brasil, reviewed the projection for GDP growth in the first quarter, currently at 0.5% compared to the last quarter of 2022. For the whole year of 2023, the forecast is 0.8%. As the number demonstrates, Couto is more cautious than Bradesco about the country’s growth capacity in 2023.

“We project a slowdown in domestic demand and for more cyclical sectors of the economy, due to the expectation of a global recession and the effects of a tighter BCB interest rate policy. grains”, says Couto.

Another point of concern for the Santander economist is that the confidence rate of entrepreneurs, both retailers and services, is below the neutral point. “Our March data show that there was an expansion in retail sales and a slight retraction in the consumption of services by families”, says Couto.

For Bradesco, one point that can help the economy is the exchange rate, mainly in controlling inflation. “Therefore, despite the positive revision of GDP this year, we maintained our projection for the IPCA at 6.2% for 2023 and 4% for 2024”, says the bank.

As for interest, Bradesco believes that there is currently uncertainty about the inflation target, a topic that should be discussed at the CMN (National Monetary Council) meeting in June.

“Once the impasse is resolved, we believe that the distance between the Focus and the target will reduce, making room for some easing of monetary policy in the second half. Therefore, for now, we maintain our expectation that the Selic will end the year at 12.25 %”, says Bradesco.

Banco ABC Brasil also revised its projection for GDP growth in 2023, from 0.1% to 1%. According to Daniel Xavier, coordinator of the economic department at ABC Brasil, the projection for February’s IBC-Br was for growth of 1.5%.

“The official GDP should grow between 1% and 1.2% in the first quarter, compared to the end of 2022”, says Xavier. On the other hand, this good performance of the economy reduces the space for a drop in interest rates in the short term. “We do not expect relevant changes in the Copom’s posture next week”, says the economist.

The labor market is also showing signs that economic activity remains heated. Brazil opened 195,171 formal job openings in March, according to the Caged (General Register of Employed and Unemployed), released this Thursday (27) by the Ministry of Labor and Employment. In the first quarter, more than 526,000 jobs were created.

Santander’s estimate was to generate 90,000 jobs. “We still expect a slowdown in the creation of new jobs in the year, especially considering the BC’s interest rate policy. But we recognize that there is a possibility of downward revision in our unemployment projections”, says Gabriel Couto.

caution remains

There are economists who highlight some points that could distort economic activity data in the first quarter of 2023. Therefore, they are more cautious in relation to growth in the rest of the year.

Fabio Astrauskas, economist and CEO of consultancy Siegen, says that the fundamentals of the economy suggest a much lower growth than that indicated by the IBC-Br. According to him, the increase in fuel prices in early 2022 may have “contaminated” the basis for comparison.

He claims that the indicators for this beginning of the year cannot yet be influenced by the more expansionist policy of the government of Luiz Inácio Lula da Silva (PT). “If the government really increases spending a lot, we will see higher GDP, especially from the second quarter”, says Astrauskas.

Ulisses Ruiz de Gamboa, economist at the Commercial Association of São Paulo, says that trade and services data show a slowdown compared to last year.

“Interest rates are high, incomes are lower, businessmen’s confidence is low. So, unfortunately, we will have to live with lower growth than that suggested by the February IBC-Br”, states Gamboa.

The numbers for commerce and services up to February justify caution in the sector. According to the IBGE (Brazilian Institute of Geography and Statistics), there was a drop of 0.1% in retail sales excluding construction material, vehicles and food, compared to January.

Santander points out that retail performance in February can be considered mixed. “Looking forward, despite the still positive signs in March, we expect the sector to return to presenting a lukewarm performance during the year”, says Gabriel Couto.

In the service sector, the bank saw more bright spots. According to the IBGE, there was a growth of 1.1% in the volume of services provided in February compared to January. The annual increase was 5.4%.

However, Santander draws attention to the drop in the volume of services provided to families, of 0.7% in the monthly comparison. In one year, there was growth of 11.5%.