Ministry of Finance raises GDP growth forecast to 2.5% this year

The Secretariat for Economic Policy (SPE) of the Ministry of Finance raised its projection for growth in the Gross Domestic Product (GDP, sum of goods and services produced in the country) from 1.9% to 2.5%. The estimate for inflation fell. The forecasts are in the Macrofiscal Bulletin released this Wednesday (17).

According to the Ministry of Finance, the revision in growth was motivated by the 1.9% increase in GDP in the first quarter and by the expectation of a drop in interest rates in the second half due to the slowdown in inflation. The growth estimate for 2024 was maintained at 2.3%.

Growth projections have improved for all sectors. For agriculture, the projection changed from 11% to 13.2%. For industry, the estimate increased from 0.5% to 0.8%, while the projection for services increased from 1.3% to 1.7%.

At the beginning of the month, the Secretary for Economic Policy, Guilherme Mello, announced that the projection for this year’s GDP would be between 2.5% and 3%. On the occasion, he pointed out that, at the beginning of the year, the financial market predicted expansion of just 1% for the Brazilian economy this year.

The Vice President of the Republic, Geraldo Alckmin, used social networks to celebrate the new numbers. Highlighting the work of the Minister of Finance, he stated that “Brazil is back”.

Brazil is back! The Ministry of Finance, led by @Haddad_Fernando, has just published a review of the projections for this year’s GDP. The growth of national production as a whole increased from 1.9% to 2.5%.

— Geraldo Alckmin 🇺🇸 (@geraldoalckmin) July 19, 2023

Inflation

The inflation projection by the Extended National Consumer Price Index (IPCA) dropped from 5.58% to 4.85%. The estimate is above the inflation target for the year, set by the National Monetary Council (CMN) at 3.25%, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit is 4.75%. For 2024, the estimate dropped from 3.63% to 3.3%.

According to the SPE, the inflation expectation for 2023 was revised downwards based on the sharp deceleration of the IPCA in April and May. Also contributing to the drop in the projection was the readjustment authorized for the health plan, which was slightly lower than projected; the reduction in gasoline, diesel and bottled gas prices at refineries; and revisions in residential electricity and urban bus tariffs.

For 2024, the lower projection reflects the drop in the dollar to below BRL 5, the drop in the price of commodities (primary goods with international quotation), in addition to the smaller readjustments foreseen for regulated prices. According to the SPE, the revision for next year occurred both because of the expected disinflation for 2023 and because of the projected conditions for external demand.

The National Consumer Price Index (INPC), used to establish the value of the minimum wage and correct pensions, should end this year with a 4.48% variation, according to the SPE forecast, against 5.34% forecast in the previous bulletin, released in May. The projection for the General Price Index – Internal Availability (IGP-DI), which includes the wholesale sector, the cost of civil construction and the final consumer, dropped from 2.06% inflation to 2.21% deflation.

Mid-term

After the improvement of projections for this year, the SPE expects a slight slowdown for 2024. According to the agency, this will occur due to the decrease in international demand, which will make Brazil export a little less, and due to the lower projected growth for the agricultural sector, which will settle down next year after growing more than 10% this year.

Even with the slowdown, the SPF projects that GDP growth will be better distributed across sectors of the economy in 2024, with industry and services improving compared to this year.

“These sectors should benefit from the improvement in the business environment and reduction of uncertainties resulting from the approval of fiscal and tax reforms”,

highlighted the report.

Another factor that will prevent a greater slowdown next year will be the recovery of domestic demand. Consumption will be boosted by the drop in interest rates and the adoption of stimulus measures, such as the new Growth Acceleration Program (PAC) and social policies.

“Consumption and investment should gain new impetus with the reduction of interest rates and defaults and with the new PAC, focused on energy transformation. The reduction of inequality, resulting from policies that value the minimum wage and wage equality between women and men, the new Bolsa Família and the Minha Casa, Minha Vida program should also help to increase domestic absorption, guaranteeing sustainable and inclusive growth”,

concluded the SPE.

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