Markets improve Brazil’s GDP forecast despite weak Q3 results

Analysts surveyed by the Central Bank responded to underwhelming Q3 GDP figures by raising their expectations for the economy this year. The latest Focus Report shows that the median market forecast for economic growth in 2022 went from 2.76 percent a month ago to 3.05 percent on Monday.

The mood also improved for 2023 — with predictions rising from 0.7 to 0.75 percent in a month — and marginally for 2024, from 0.74 to 0.75 percent.

Last week, the government reported that the economy grew by 0.4 percent, anchored by the services sector, industry, and household consumption. The result was below market expectations of 0.6 percent. However, the economy still expanded by 3.6 percent year on year.

A global slowdown, the loss of steam of stimulus measures, and the impacts of the Central Bank’s monetary policy of high interests should keep the economy sluggish, with Q4 GDP growth expected to be zero. Nevertheless, positive job figures and the holiday season tend to boost retail.

Markets’ attention this week turns to the Central Bank’s last policy meeting of the year, which is expected to keep interest rates at 13.75 percent. 

For next year, markets raised their expectations for benchmark interests — from 11.25 percent last month to 11.75 percent. This movement can be explained by growing fears around the next government’s plans to increase spending with reduced concerns for fiscal responsibility.  

On Wednesday, the Senate is expected to vote on the so-called “Transition bill,” which grants the new administration authorization to exempt social programs from federal spending cap rules and to jack up investment should tax revenue exceed expectations.

This fear of increased spending can also be seen in the bump in projections for inflation. On Monday, the market increased the year-end IPCA consumer price index forecast for the sixth time in a row — to 5.92 percent.

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