Economy

Brazilian Research Institute improves GDP growth forecast in 2021 to 4%

The agency forecasts that the basic Selic interest rate will reach 3% by the end of 2021 and the dollar will stay at BRL 5

Photo: REUTERS/Paulo Whitaker
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  • For this year, Ipea started to see a 4.3% contraction in Gross Domestic Product (GDP);
  • However, Ipea points to a series of uncertainties on the horizon that may jeopardize the recovery path of economic activity.

Brazil’s Institute of Applied Economic Research (Ipea, in Portuguese) improved its estimate for the growth of the Brazilian economy in 2021 to 4%, from 3.6% before, but pointed to the fiscal deterioration, the end of emergency aid, and the possible second wave of infections by coronavirus as challenges for an activity next year.

For this year, Ipea started to see a 4.3% contraction in Gross Domestic Product (GDP), also improving its accounts from a 5% drop calculated in September, mainly due to the faster recovery of industry and trade.

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Ipea predicts that in 2021 the highlights in the economy will be industry and gross fixed capital formation – an investment measure -, with advances of 5% and 5.3% respectively. Household consumption and services, which have significant weight in economic activity, are expected to grow by 3.5% and 3.8%.

However, Ipea points to a series of uncertainties on the horizon that may jeopardize the recovery path of economic activity. According to the agency, the upsurge in the COVID-19 pandemic, the end of emergency aid, the fiscal tightening, and even supply bottlenecks caused by the scarcity of inputs are challenges for Brazilian economic activity.

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“Within this context of risk balance… if the end of emergency aid at the end of December is confirmed, as well as other measures to mitigate income and job losses, we expect some accommodation of the activity level in the first quarter, with the economy returning accelerating over the rest of the periods, ”said Ipea.

“On the supply side, with the proximity of the release and distribution of some vaccines, despite the recent upsurge in statistics on contagion and deaths, the expectation is that the service sector will again gain traction throughout 2021, according to the rules of isolation are gradually extinguished,” it added.

The institute also expects an improvement in the inflationary scenario with lower food pressure, which pulled the inflation rate upward mainly in late 2020.

Official inflation is expected to decelerate from 4.4% this year to 3.49% in 2021, according to Ipea’s accounts.

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“The composition of the inflation index for the next year will be different, influenced by a decompression of food prices and a stronger rise in inflation in administered prices and services”, explained Ipea.

The agency forecasts that the basic Selic interest rate will reach 3% at the end of 2021 and the dollar will be BRL 5.

(Translated by LABS)

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