Days after Brazil’s Q1 gross domestic product beat expectations on the back of an agricultural boom, the country’s leading financial institutions significantly raised their forecasts for economic growth in 2023.
The median GDP growth forecast jumped more than 0.4 percentage points, from 1.26 to 1.68 percent, according to the latest Focus Report, the Central Bank’s weekly survey of top investment firms. It was the fourth consecutive upward revision.
Goldman Sachs, for example, raised its forecast from 1.75 to 2.6 percent as it expects the Brazilian economy to benefit from “renewed fiscal and quasi-fiscal stimulus” (additional federal fiscal transfers to low-income households), a real wage expansion (Brazil’s minimum wage was raised in May), and a “favorable outlook for agricultural food prices on real disposable income” in the coming quarters.
On the other hand, the country could face some headwinds beyond Q1, including the fading momentum of economic reopening, tight domestic monetary and financial conditions, high household indebtedness, and an incipient turnaround in the credit cycle, Goldman Sachs told clients in a recent report.
Itaú-BBA, the research arm of Latin America’s largest bank, said it would also raise its forecast from the current 1.4 percent in the next few days, adding that if activity continues to grow at a constant level over the next three quarters — the so-called statistical load — GDP would grow 2.1 percent this year.
Inflation expectations for 2023 (from 5.71 to 5.69 percent) and 2024 (from 4.13 to 4.12 percent) also fell slightly, signaling that analysts expect the disinflationary process to continue, but slowly, as economic activity may remain more dynamic than expected.
For 2024, the more than 140 financial institutions surveyed by the Central Bank expect GDP to grow by 1.28 percent, slightly lower than last week’s forecast of 1.3 percent.
In general, economists expect the effects of monetary tightening to fade only next year, with investment also recovering slowly, hence the low GDP forecast for 2024.
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