Itaú BBA: Pandemic-related spending will affect Brazil’s growth

Brazil’s worsening pandemic situation — and the subsequent increase in public expenditures — led investment bank Itaú BBA to worsen its forecast for Brazil’s primary deficit from 2.5 to 2.8 percent of the GDP, the equivalent to BRL 235 billion (USD 41.4 billion). 

The Jair Bolsonaro administration currently expects the deficit to reach BRL 247.1 billion this year. 

In its April’s Economic Outlook, Itaú BBA analysts warned additional emergency expenses outside public spending cap rules could reach BRL 100 billion, against its previous forecast of BRL 62 billion. “Given the dynamics of the pandemic and the economic and social consequences, there is a non-negligible risk of further flexibilization of the spending-ceiling fiscal regime,” analysts wrote.

Itaú BBA’s estimates come as the government mulls over a new constitutional amendment to remove pandemic spending from 2021’s yet-to-be-approved budget, making room for parliamentary grants. The deterioration of the fiscal scenario — combined with higher interest rates in Brazil — is likely to impact GDP growth in 2022.

Itau BBA forecasts an anemic growth of 1.8 percent, below market consensus of 2.33 percent seen in the Focus report, a weekly Central Bank survey of top-rated investment firms.

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