Today’s edition of the Focus Report, a weekly Central Bank survey among top-rated investment firms, reflects the growing fears around the Brazilian economy now that the Jair Bolsonaro administration has completely broken with its pro-austerity motto. For the first time since mid-June, the median GDP growth prediction for the year dropped below the 5-percent mark, now at 4.97 percent.
Meanwhile, inflation predictions jumped from 8.69 to 8.96 percent. The upper limit of the government’s target band sits at 5.25 percent. Also, markets expect further devaluation for the Brazilian Real. The median forecast for the country’s foreign exchange rate went from BRL 5.25 on the dollar to BRL 5.45.
Last week, the government announced a new cash-transfer program to be partially funded with extraordinary credit that is not controlled by the federal spending cap, making investors jittery about the future trajectory of the country’s public deficit. The problem is not the amount of money that surpasses the cap (around BRL 30 billion), but the fact that the public purse is now completely exposed to electoral interests — which means more over-the-cap spending could be on the way.
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