Ahead of Q1 GDP reading, markets improve forecasts for Brazil’s economy

São Paulo's financial district. Photo: Zigres/Shutterstock

Brazil’s Q1 GDP results will be published on Thursday. Thanks to a bounceback of the country’s labor market and stimulus from the federal government, which has increased the value of the minimum wage and aid payments, economists believe the economy will have grown by 1.3 percent, quarter-on-quarter, and 1.9 percent annually (think tank Fundação Getulio Vargas was less bullish, predicting annual growth of 1.6 percent).

According to the Focus Report, a weekly Central Bank survey with top-rated investment firms, markets are improving their outlook for the Brazilian economy, believing that year-end inflation will be lower than initially expected, while expectations for GDP growth continue to edge slightly higher.

Markets’ median forecast for economic growth for 2023 has gone up for the third straight week to 1.26 percent (from just 1 percent four weeks ago). Meanwhile, the inflation forecast has been cut from 6.05 percent a month ago to 5.71 percent now.

The foreign exchange rate, which markets believed would close the year at BRL 5.20 per U.S. dollar, now sits at BRL 5.11 per dollar.

Economists, however, believe the economy will slow down after Q1. Energy consumption, a bellwether for economic activity, dropped in April from March. Average consumption fell 7.7 percent last month, dropping across all sectors tracked by the Chamber of Electric Energy Commercialization (CCEE).

A month ago, Finance Minister Fernando Haddad said an economic deceleration driven by Brazil’s hawkish monetary policy (benchmark interests sit at 13.75 percent) would hamper tax collection and create fiscal “problems” for the government.