Market raises economic expansion projection to 2.92% in 2023

The financial market’s forecast for the growth of the Brazilian economy this year increased, going from 2.84% to 2.92%. The estimate is in the Focus bulletin of Monday (11), a survey released weekly by the Central Bank (BC), in Brasília, with the projection for the main economic indicators.

For next year, the expectation for the Gross Domestic Product (GDP – the sum of goods and services produced in the country) – is for growth of 1.51%. For 2025 and 2026, the financial market projects GDP expansion of 2% for both years.

Exceeding projections, in the third quarter of the year the Brazilian economy grew 0.1%, compared to the second quarter of 2023, according to the Brazilian Institute of Geography and Statistics (IBGE). In the year, the accumulated increase was 3.2%.

As a result, GDP is once again at the highest level in the historical series, remaining 7.2% above the pre-pandemic level, recorded in the last three months of 2019.

Inflation

In this edition of Focus, the forecast for the Broad National Consumer Price Index (IPCA) – considered the country’s official inflation – for 2023 was reduced from 4.54% to 4.51%. For 2024, the inflation estimate was 3.93%. For 2025 and 2026, forecasts are 3.5% for both years.
The estimate for 2023 is above the center of the inflation target that should be pursued by the BC. Defined by the National Monetary Council (CMN), the target is 3.25% for 2023, with a tolerance range of 1.5 percentage points up or down. In other words, the lower limit is 1.75% and the upper limit is 4.75%.

According to the BC, in the latest Inflation Report, the chance of the official index exceeding the target ceiling in 2023 is 67%. The market projection for 2024 inflation is also above the center of the expected target, set at 3%, but is still within the tolerance range of 1.5 percentage points.
In October, the increase in air ticket prices put pressure on inflation. The IPCA was 0.24%, according to IBGE. The percentage was below the September rate, which increased by 0.26%.
Accumulated inflation this year reached 3.75%. In the last 12 months, the index is 4.82%.

Interest rate

To achieve the inflation target, the Central Bank uses as its main instrument the basic interest rate – the Selic – defined at 12.25% per year by the Monetary Policy Committee (Copom). After successive drops at the end of the first half of the year, inflation rose again in the second half of the year, but this increase was expected by economists.

The behavior of prices has already caused the BC to cut interest rates for the third time in the semester. The cut cycle must be maintained at this week’s Copom meeting, which takes place this Tuesday (12) and Wednesday (13). The market expectation is for a cut of 0.5 percentage points, so that the Selic will end 2023 at 11.75% per year.

From March 2021 to August 2022, the Copom raised the Selic rate 12 consecutive times, in a cycle of monetary tightening that began amid rising food, energy and fuel prices. For one year, from August last year to August this year, the rate was maintained at 13.75% per year for seven consecutive times.

Before the start of the rising cycle, the Selic had been reduced to 2% per year, at the lowest level in the historical series that began in 1986. Due to the economic contraction generated by the covid-19 pandemic, the Central Bank had lowered the rate to stimulate production and consumption. The rate was at the lowest level in history from August 2020 to March 2021.

Analysts

By the end of 2024, analysts estimate that the basic rate will fall to 9.25% per year. For the end of 2025 and 2026, the forecast is for Selic to be at 8.5% per year, for both years.

When the Copom increases the basic interest rate, the purpose is to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. But, in addition to the Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses. Therefore, higher rates can also make it difficult for the economy to expand.

When the Copom reduces the Selic, the tendency is for credit to become cheaper, encouraging production and consumption, reducing control over inflation and stimulating economic activity.
Finally, the financial market forecast for the dollar exchange rate is R$4.95 for the end of this year. By the end of 2024, the forecast is that the American currency will remain at R$5.

Read more:

The largest open-air shopping mall in Manaus is expected to generate R$490 million in the economy

Sebrae will replicate a project that combines economy with a sustainable knowledge society

City Hall’s Christmas events boost the economy at the end of the year and delight the public