The Brazilian government has lowered its GDP growth forecast for 2023 to 2.3% and raised its inflation outlook to 4.8%. Although these figures reflect a more cautious economic stance, they remain more optimistic than market expectations. The central bank is expected to continue adjusting interest rates as it assesses inflationary pressures.
Brazil’s government has revised its GDP growth forecast for 2023 down to 2.3%, influenced by ongoing monetary policy tightening. Alongside this, the country’s inflation outlook has been adjusted upwards, now expected to be 4.8%, higher than the previous estimate of 3.6% set in November. This shift suggests a notable decline in economic performance compared to the estimated 3.5% growth expected in 2024. Official GDP figures are anticipated to be disclosed in early March.
The finance ministry highlighted that inflation is projected to be affected by lagged currency depreciation and inflationary inertia. Brazil aims for a 3% inflation target, with a permissible variance of 1.5 percentage points, indicating expectations for inflation to surpass this ceiling for a second consecutive year, as it was 4.83% in 2024.
Despite the government’s less optimistic outlook for economic growth and rising inflation challenges, their projections are still more positive than those from the market. Private-sector economists forecast GDP growth of 2.03% for this year, alongside an anticipated consumer price rise of 5.58%. This discrepancy highlights the more favorable stance the government is taking.
To mitigate inflationary pressures, the central bank has indicated a necessity for economic slowing. Central bank chief Gabriel Galipolo stated that the bank will take adequate time to evaluate whether the ongoing cooling trend is stable. In response, the central bank raised interest rates by 100 basis points to 13.25% in late January, intending to implement a similar increase in the forthcoming March meeting.
In summary, the Brazilian government’s recent revisions indicate a downward adjustment in growth forecasts alongside an increase in inflation expectations. While the government maintains a more optimistic perspective than market economists, the challenges posed by inflation and economic performance call for careful monitoring and potential further intervention by monetary authorities. The central bank’s decisions will play a crucial role in stabilizing the economy amidst these adjustments.
Original Source: www.marketscreener.com
