Worsening credit in a scenario of high interest rates could affect GDP in 2023, says Fazenda – 02/03/2023 – Market

The deterioration of credit conditions in the country in a scenario of high interest rates may affect GDP (Gross Domestic Product) growth in 2023, according to the SPE (Secretary of Economic Policy) of the Ministry of Finance.

According to the agency, in a note released this Thursday (2), the slowdown in the global economy could also negatively impact economic activity in Brazil throughout this year.

“The increase in the rigidity of monetary policy worldwide, reducing the pace of growth of the global economy and, consequently, the contribution of the external sector to domestic activity and the worsening of bank and non-bank credit conditions may weigh negatively on activity. banking due to high domestic interest rates, making it difficult for companies to roll over debts and access working capital”, he said.

Among the positive factors for growth in the coming months, he highlights “the record grain production projected for the 2023 harvest, the resilience of the labor market, the real readjustment of the minimum wage and the elevation of the Income Tax exemption range” .

According to data released this Thursday by the IBGE (Brazilian Institute of Geography and Statistics), the Brazilian economy closed the year 2022 with accumulated growth of 2.9%. But the Brazilian economy lost pace and retreated 0.2% in the 4th quarter compared to the immediately previous three months.

The Secretariat for Economic Policy considers that the “sharp deceleration” observed last year reflects “the reduced liquidity in the external environment and the contractionary cycle of monetary policy”. The basic interest rate (Selic) ended 2022 at 13.75% per year – the highest level in more than six years.

“The increase in interest rates added to the growing default made it difficult to take credit and productive investments, leading to the retraction of industrial activity and GFCF [formação bruta de capital fixo]”, he stated.

In its analysis of GDP, the economic team once again referred to the cycle of monetary tightening (the process of increasing interest rates) promoted by the Central Bank over the last year in an attempt to contain inflation.

The issue has been the target of recurrent criticism from President Luiz Inácio Lula da Silva (PT) and other members of the government, which has generated wear and tear with the monetary authority in recent weeks.

The Minister of Planning, Simone Tebet (MDB), said on Wednesday (1st) that the decision by the Ministry of Finance to resume charging federal taxes on gasoline and ethanol shows the BC that the government is doing “homework” .

“We are, indeed, focused now on cost containment. This is what we want to show the Copom [Comitê de Política Monetária] and Central Bank. They can, even if gradually, reduce interest rates, we have fiscal responsibility and we are doing our homework”, he told journalists, after breakfast at the Planalto Palace.

Minister Fernando Haddad (Finance) said in an interview with UOL, also on Wednesday, one day before the indicator was released by the IBGE, that the country’s “main economic problem” is the high level of interest, although he highlighted that the level of Selic is a reflection of the inheritance left by the Bolsonaro government.

“I, as Minister of Finance, have to take compensatory measures to balance the game and allow and even count on the Central Bank to do its part and start restoring the balance of economic policy, with a view to sustainable growth,” he said.

The holder of the economic folder, however, denied that he was sending a message to the monetary authority. “I remembered what was written in the minutes of the Copom”, he pointed out.