The Brazilian bank Bradesco has significantly reduced its growth estimates for Brazil‘s economy for next year. The bank foresees higher interest rates and inflation, a depreciated exchange rate, and slower economic activity in 2022, besides the risk of energy rationing as the main negative vector to be monitored.
The bank’s estimate is that Gross Domestic Product (GDP) will grow by only 1.6%. The bank relates this low growth to signs of slower expansion of the world economy. According to the bank, the negative impact is not greater because the resumption of consumption of Brazilians to the pre-pandemic level should ensure some dynamism to the domestic economy. The unoptimistic analysis was released by Bradesco on Friday (1).
Despite a forecast of low economic growth, inflation will be higher in 2022. The second-largest private bank in the country predicts that the IPCA will rise 3.8% next year. According to Bradesco, the inflationary picture is “much more uncertain” for 2022, with risks of spreading the price hikes of 2021, but also chances of stronger relief due to the prospect of a “much less expansionary” economic policy.
In any case, in the accounts of the private bank, inflation will again be above the target (of 3.50% for 2022). The bank estimates that inflation in 2021 will reach 9.0%, well above the target of 3.75% for the year.
“As a consequence, we expect the Selic rate to reach 8.25% in 2021 and 8.50% in 2022,” said Bradesco. “However, the Selic should peak between 8.75% and 9.25% in the current monetary tightening cycle, depending on price dynamics early next year,” the bank added, assessing that this view seems consistent with Copom’s intention to take the Selic to a significantly contractionary level.
Even with the higher interest rate, the exchange rate will depreciate more in 2022. Bradesco now sees the dollar at BRL 5.60 at the end of next year, after reaching BRL 5.15 at the end of this year.
In the accounts of the bank’s economic research team, the fair value for the exchange rate remains below BRL 5.00 per dollar, but this depends on an “appropriate” fiscal adjustment, inflation reduction, and domestic uncertainties. The dollar was priced around BRL 5.36 on Friday (1).