Lula’s government predicts lower growth in 2023 – 03/17/2023 – Market

Lula’s government predicts lower growth in 2023 – 03/17/2023 – Market

In its first release of economic projections since the beginning of its term, the government of Luiz Inácio Lula da Silva (PT) reported predicting a more timid economic growth in 2023, although the data is still more optimistic than expected by the market.

The Ministry of Finance calculates a growth of 1.61% in GDP (Gross Domestic Product) this year, lower than the previous estimate, made during the administration of Jair Bolsonaro (PL), which predicted a rise of 2.1%.

In the Central Bank’s Focus Bulletin, the expectation of market analysts has even improved in recent weeks, but it is still a more timid advance, of 0.89% this year.

The government also estimates a new burst of the inflation target in 2023 – if confirmed, it will be the third consecutive one. The projection for the IPCA (National Consumer Price Index) went from 4.6% to 5.31%. The target for this year is 3.25%, with a tolerance margin of plus or minus 1.5 percentage points.

The new figures were released this Friday (17th) by the SPE (Secretariat for Economic Policy).

According to the agency, the new GDP projection incorporates the negative effects of high interest rates on economic activity. “The previous forecast, made in November 2022, minimized the contractionary effects of monetary policy on the economic cycle and on the credit market”, says the bulletin.

In the case of inflation, the SPE said it incorporated a “more realistic” scenario for the prices of monitored goods and services, such as electricity tariffs and health plans. Reinstatement of federal taxes on gasoline was also considered.

“Although the measure causes a small increase in fuel prices at the pump in the short term, it helps fiscal balance, contributing to a structural reduction in inflation, in addition to bringing benefits to the environment”, says the document.

The government also revised downwards the projection for GDP growth in 2024, from 2.5% to 2.34%, but raised the estimate for 2025 to 2.76%. Inflation measured by the IPCA, in turn, should increase by 3.52% next year and converge to the 3% target from 2025 onwards.

In addition to signaling the government’s expectations for the economy this year, the parameters released by the SPE are important benchmarks for the evaluation and execution of the Budget.

Lower growth tends to negatively impact revenue estimates. Inflation, in turn, pushes up revenue in nominal terms, but it also puts pressure on expenses corrected by the price index.

The disclosure of figures is also particularly relevant at a time when the Minister of Finance, Fernando Haddad (PT), is discussing with the Planalto Palace the final format of the new fiscal rule to be presented to the National Congress.

The economic team has been giving indications that the framework must have a mechanism for controlling expenses, in addition to having a healthy level of public debt as a reference. The dynamics of these instruments may eventually be linked to some macroeconomic indicator.

On Wednesday (15), the minister said that he had delivered the proposal to Lula, but would only meet this Friday with the Chief Executive to discuss the details.

“He [Lula]obviously, the day after tomorrow you will know all the details to validate the parameters, validate the design, so that you can authorize the writing of the complementary bill that will go to the National Congress”, he said at the time.

On the same day, the Minister of Planning and Budget, Simone Tebet (MDB), stated that the “framework” of the fiscal rule was ready and that the economic team was “closing the numerical issue to present the most pessimistic and the most optimistic perspective for the president”.

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