Economists lower Brazil’s 2023 GDP growth and inflation forecasts

As the Brazilian economy shows signs of a slowdown, markets are beginning to lower their GDP growth forecasts for this year. The Focus Report, a weekly survey of top investment firms conducted by the Central Bank, saw the median growth forecast lowered on Monday for the first time in six months — from 2.92 percent to 2.9 percent. The last downward revision had been on April 17.

Last week, several economic indicators pointed to a slowing economy. The Central Bank’s economic activity index, considered a reliable bellwether for GDP, fell 0.77 percent in August. In the same month, core retail sales fell 0.2 percent and the services sector contracted 0.9 percent. 

Finance Minister Fernando Haddad expressed concern last week about the economy’s performance in the third quarter. However, Mr. Haddad has maintained his expectation that Brazil will end the year with growth of around 3 percent.

Analysts surveyed by the Focus Report also cut their inflation expectations for the second week in a row. Year-end forecasts were lowered from 4.75 percent last Monday to 4.65 percent now.

The cut comes after Petrobras announced a cut to the price of gasoline, the most widely consumed fuel in Brazil. Given Brazil’s reliance on trucks to transport goods around the country, fuel prices have ripple effects throughout supply chains. 

In September, for example, the rise in fuel costs accounted for about three-quarters of the country’s mid-month inflation rate. Lower prices at the pump, combined with a cooling inflationary trend, suggest that Brazil’s IPCA consumer price index will end the year within the government’s target range of 1.75 to 4.75 percent. 

The latest inflation data shows a continuation of the cooling of Brazilian price increases. Consumer prices rose 0.26 percent in September, below the median market expectation of 0.33 percent.

The Focus Report weighs heavily on the Central Bank’s approach to monetary policy. The bank has begun easing, lowering the benchmark interest rate from 13.75 percent to 12.75 percent in its last two policy meetings — and further half-percentage-point cuts are expected in the next two.

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