IMF increases growth projections for Brazil’s GDP

With inflation waning and growth remaining steady, the likelihood of a hard landing for the global economy has receded, and risks to global growth are broadly balanced. This is the main update on the International Monetary Fund’s economic outlook for the next couple of years. 

Therefore, the global lender sees Brazil much more resilient than before, thanks to greater domestic demand and higher-than-expected growth from Brazil’s main trading partners, such as China.

The IMF forecasts a global growth of 3.1 and 3.2 percent in 2024 and 2025, a slight upgrade from October projections of 3 and 2.9 percent, respectively. This is largely due to a greater resilience of the U.S. economy and several large emerging markets, coupled with more fiscal support in China. 

“However, this forecast remains well below the 2000-2019 average growth of 3.8 percent,” warned the IMF. For Brazil, GDP growth projections for 2024 grew from 1.5 percent in October to 1.7 percent now.

As in October, the IMF praised the Brazilian Central Bank’s move to start an interest rate cut cycle earlier than other peers, supported by a successful deflationary process.

The Central Bank’s Monetary Policy Committee is holding its first meeting of 2024 between today and tomorrow, under the watchful eye of analysts who expect a new cut of half a percentage point in the Selic to 11.25 percent — the median of projections points to the country’s benchmark interest rate ending this year at 9 percent.

This perspective is reinforced by the minutes of the previous meeting, released in December, in which the committee said that its members “unanimously agreed” to continue with the current pace of Selic cuts “for the next meetings.”

At the time, the bank was working with a more benign inflationary scenario compared to previous months, moderately lowering its 2023 year-end forecast for the country’s flagship consumer price index, from 4.7 to 4.6 percent — IPCA did end the year at 4.62 percent.

For 2024, market analysts surveyed by the Central Bank’s Focus report believe inflation will close the year at 3.81 percent, which would fall more comfortably below the upper limit of the target band (set at 4.5 percent) than in 2023. 

Still, it may be too early to declare victory in the fight against rapid price increases. In December, all product segments got more expensive, especially food products and transportation.

At the same time, core inflation, which excludes more volatile prices such as food and fuel, has accelerated recently, according to readings from the Brazilian Institute of Economics at the think tank Fundação Getulio Vargas. Whether this move was structural or happened due to specific one-off events remains to be seen.

A month earlier, the Central Bank’s economic activity index (IBC-Br), considered a reliable bellwether for the economy, broke a three-month skid and posted a slight increase of 0.01 percent, probably driven by the services sector 0.4 percent in November, boosted by one-off music events.

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