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Published: Mar 17, 2023, 18:07 UTC•1min read
BRASILIA (Reuters) – Brazil’s Finance Ministry reduced its estimates for economic growth this year, mentioning the impact of higher basic interest rates on activity and credit, as well as reduced liquidity in the United States.
BRASILIA (Reuters) – Brazil’s Finance Ministry reduced its estimates for economic growth this year, mentioning the impact of higher basic interest rates on activity and credit, as well as reduced liquidity in the United States.
The Ministry’s Secretariat of Economic Policy (SPE) now projects a gross domestic product expansion of 1.61%, down from 2.1% in November. The projection for next year was also reduced to 2.34% from 2.5%.
In a statement, the secretariat said previous estimates, made under former President Jair Bolsonaro’s government, “minimized the contractionary effects of monetary policy on the economic cycle and credit market.”
New leftist President Luiz Inacio Lula da Silva has consistently criticized the level of the central bank’s benchmark interest rate, which has been held steady at a six-year high since September, arguing that it harms activity growth and threatens a credit crunch.
The secretariat also now sees higher inflation, at 5.31% in 2023 and 3.52% in 2024, up from 4.6% and 3%, respectively.
The official inflation target is 3.25% this year and 3% in 2024, with a margin of plus or minus 1.5 percentage point.
(Reporting by Marcela Ayres; Editing by Chris Reese and Diane Craft)
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Brazil’s Finance Ministry has recently released a report revealing a revision in their forecast for the country’s gross domestic product (GDP) in 2023, reducing the projected growth to 1.61%.
Since the beginning of the pandemic, Brazil’s economy has been severely impacted, leading to a downward revision of its 2021 and 2022 GDP forecasts, which stand at 4.9% and 2.41% respectively. While this adjustment was expected, the Finance Ministry’s new GDP projection for 2023 appears to be far more pessimistic than previously predicted; the department had suggested in December that the country’s 2023 GDP could reach as high as 3.1%.
The report highlights that personal consumption and public spending are expected to remain low, indicating a slower recovery from the economic crisis caused by the pandemic. Several economic indicators and indicators of investor confidence suggest that investors are concerned the current growth rates are unsustainable. The Brazilian real is also under pressure, experiencing major devaluation against the US dollar over the past few months.
Brazil’s economy is far from out of the woods and public policies must be implemented in order to revive the economy and bolster investor confidence. Brazilian officials have acknowledged this, so decision makers and policymakers are likely to focus on balancing fiscal and monetary policies to increase growth rates in the medium-term.
While the recession may have put a dampener on Brazil’s economic prospects, it is worth noting that the projected growth rate of 1.61% is still higher than many other countries. In spite of the current crisis, Brazil is expected to outpace the worldwide median in terms of growth rates in the forthcoming years.
