Itaú and XP reinforce optimism and revise GDP upwards – 05/05/2023 – Market

The performance of the agricultural sector and services at the beginning of the year came in above market analysts’ expectations and led to a series of revisions in the projections of banks and brokerages for GDP growth (Gross Domestic Product) in 2023.

This Friday (5), it was Itaú and XP Investimentos’ turn to increase their estimates for the expansion of economic activity this year. Both forecast GDP growth of 1.4% for 2023, compared to 1.1% and 1%, respectively.

With this, the institutions join the optimistic wave that began last week, when Bradesco, Santander and ABC Brasil had already revised their GDP projections.

In the latest Focus bulletin, the median projections of economists consulted by the BC (Central Bank) indicate an expansion of 1% of the economy. A month ago, the projection in Focus was at 0.90%, and at 0.78% at the beginning of the year.

According to Itaú, the good short-term results of the Brazilian economy contributed to the improvement of GDP expectations for this year.

Last Friday (28), the BC announced that the IBC-Br (Index of Economic Activity of the Central Bank) recorded growth of 3.32% in February compared to the previous month. The indicator, which represents a kind of GDP preview, had the highest growth since June 2020 (4.86%), and motivated Mirae Asset Wealth Management to also revise its expectation for GDP from 1% to 1.4%. from 2023.

According to economists at Itaú, recent activity data corroborate the expectation of a strong rise in GDP in the first quarter. The bank foresees a growth of 1.2% of the economy in the first quarter of the year, in the quarterly comparison, with emphasis on the agricultural sector. The GDP data for the first quarter will be released by the IBGE (Brazilian Institute of Geography and Statistics) on June 1st.

XP, on the other hand, predicts a 1.1% expansion for GDP in the first quarter, a projection that was at 0.8% a month ago. “A large part of this increase stems from the strong recovery of the GDP of agriculture, driven by the soybean harvest”.

XP analysts point out that Brazilian exports should expand sharply, with solid external demand and international commodity prices at high levels.

Specialists at the investment platform also point out that the services sector grew above expectations in the first months of the year, while the labor market has shown resilience, with a significant net generation of formal jobs of around 430,000 new jobs between January and March , already discounting seasonal influences.

The heated job market, in turn, should boost consumption, says XP, which forecasts a significant rise of 4.2% in real terms of household disposable income in 2023, “in line with the recovery of wages and larger government transfers.”

Chief Economist at Mirae Asset Wealth Management, Julio Hegedus Netto says that household consumption, driven by government stimulus policies, such as the Bolsa Família program and the minimum wage readjustment, was also what motivated the house to revise 1 % to 1.4% the projection for the 2023 GDP.

He says that the change in the estimate came in the wake of the BC data that serves as a preview for the GDP, which surprised positively. “Directed credit policies should also be highlighted”, says the chief economist.

Itaú adds that the decrease in the risk of a stronger deterioration in the credit market also helped in the reading of a better performance of the economy throughout the year.

The bank’s economists also say that the fiscal framework and complementary measures to recompose revenues reduce extreme risks, although there are still significant challenges related to the implementation of the public debt trajectory.

Itaú also revised its projection for the exchange rate at the end of this year from R$5.30 to R$5.15, pointing to a reduction in volatility in the external environment, especially in the wake of less concern about a global banking crisis.

Bradesco is the most optimistic, but the bank’s president preaches caution in the short term

One of the most optimistic in the market, Bradesco revised on the last April 28 from 1.5% to 1.8% the estimate for GDP expansion in 2023. heated job market, were cited by the bank among the main reasons for greater optimism.

Despite the positive reading, the president of the bank, Octavio de Lazari Junior, said this Friday that the economic scenario still requires a greater dose of caution in the short term.

The bank’s president said that the default rate should continue to rise throughout the second quarter, and that the bank’s result in the first quarter reflected the policy adopted during the middle of last year, of a more cautious posture in granting credit. “With this effect, it is natural for credit to grow less, but the moment is one of caution.”

Inter’s chief economist, Rafaela Vitória says that the bank should revise next week’s projection for GDP growth in 2023 from 0.7% to around 1%.

She points out, however, that the review is more about looking at the economy in the rearview mirror. Looking ahead, Vitória takes a more cautious view of the performance of economic activity. “A lot of the positive surprise we saw in the first months of the year is short-lived”, she says.

According to Inter’s chief economist, measures to stimulate consumption adopted by the government should not be sustained over time. They fuel inflationary pressure and lead the Central Bank to postpone the start of interest rate cuts, she says.

“We may have a slightly better consumption than expected at the beginning of the year due to the distribution of income by the government, but we do not see a sustainable improvement for the activity, mainly for the second half.”