Brazil’s Economy Ministry raises GDP forecast

A day after Congress passed legislation allowing the government to inject massive amounts of money into social spending, the Economy Ministry revised its GDP forecast from 1.5 up to 2 percent. The new forecast is much higher than markets’ median projection of 1.59 percent.

The ministry justified its revision by pointing out that monthly surveys on economic activity show growth in multiple sectors — especially services and industry. Moreover, the amount of employed Brazilian workers has risen fast in recent months.

But there are many question marks around Brazil’s growth potential. Some experts say government spending on social policies is the only thing holding consumption up — and economic activity could plummet quickly if aid policies are dialed back.

Moreover, the Central Bank’s latest Economic Activity Index (IBC-Br), which is considered to be a reliable GDP forecast predictor, fell by 0.11 percent in May — following an even bigger slump in April. The Economy Ministry also improved its year-end inflation expectations from 7.9 to 7.2 percent, while raising 2023 projections from 3.6 to 4.5 percent. Analysts point out that recent moves to increase stimulus will have short-term results but will spark inflation and tame the economy in the longer term.

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