Economy

Brazil's Central Bank slightly worsened 2021 GDP projection

The outlook, published in the Quarterly Inflation Report on Thursday, comes after a 3.9% increase calculated in September for next year's GDP

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  • The economists heard by the Brazilian Central Bank in the most recent Focus bulletin forecast an expansion of activity of 3.50% next year and a fall of 4.41% this year;
  • Last week, the Central Bank kept the Selic interest rate at its historic low of 2%.

Brazilian Central Bank slightly worsened its projection for the Gross Domestic Product (GDP) of 2021 to a growth of 3.8%, noting that the review reflects the anticipation of the expected recovery for this year, in addition to a slower recovery in the foreign exchange market, unemployment and return to normality after the restrictions imposed by the coronavirus pandemic.

The outlook, published in the Quarterly Inflation Report on Thursday, comes after a 3.9% increase calculated in September for next year’s GDP.

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The Brazilian Central Bank stressed, once again, that its estimates were made under “uncertainty above the usual over the pace of economic growth” is again conditioned to the gradual cooling of the health crisis, the maintenance of the fiscal regime, and the scenario of continuity of reforms and necessary adjustments in the Brazilian economy.

“This change includes an increase in the statistical load after reviewing the projections for 2020 and the prospect of lower quarterly rates of change than forecast in the September Inflation Report,” said the Central Bank.

“In part, this review reflects the anticipation of the expected economic recovery, at least for some sectors and demand components for 2020. On the other hand, the lower quarterly growth is also a consequence of the slower recovery of the labor market and mobility indexes “, it added.

For this year, the monetary authority revised its estimate to a 4.4% contraction, an improvement compared to a 5% drop previously seen, a movement in line with what was already being promoted by the market and by the government itself.

According to the monetary authority, the revision of the historical series of GDP, which produced an increase in interannual variations in the first two quarters of 2020, combined with the performance in the third quarter slightly better than anticipated, in the same metric, contributed to this adjustment.

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“In the same vein, higher frequency indicators suggest continued recovery in economic activity in the fourth quarter,” said the Central Bank in the report.

In comparison, the Ministry of Economy forecasts GDP growth of 3.2% in 2021, after a GDP decline of 4.5% this year, in what will be the worst historical performance of the Brazilian economy, in the wake of the impacts of the COVID-19 outbreak about the activity.

The economists heard by the Brazilian Central Bank in the most recent Focus bulletin forecast an expansion of activity of 3.50% next year and a fall of 4.41% this year.

For this year, the Central Bank improved its forecast for agriculture to an increase of 2.3% (over 1.3% before), at the same time that it started to see a less intense fall of the industry, of 3.6% ( -4.7% before), and the services sector, with a 4.8% contraction (-5.2% before).

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On the demand side, the Central Bank worsened its accounts for household and government consumption by decreases of 6% and 4.8% in 2020, against decreases of 4.6% and 4.2% before. On the other hand, its investment estimate improved to a retraction of 4.4% in 2020, compared to 6.6% before.

As for monetary policy, the Brazilian Central Bank reinforced the message that it had already emphasized in its latest public communications.

Last week, the Central Bank kept the Selic interest rate at its historic low of 2% and pointed out that, due to the inflationary scenario, the conditions for its commitment not to raise interest rates basics – via forwarding guidance – may soon be no longer satisfied.

Despite this, the Brazilian Central Bank stressed that a Selic increase would not be a mechanical process.

(Translated by LABS)

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