Financial market raises inflation estimate for 2021 to 7.11% and sees lower GDP increase | Economy

Financial market economists raised the estimate of the Broad Consumer Price Index (IPCA), the country’s official inflation, for the twentieth week in a row. The expectation for the indicator in 2021 rose from 7.05% to 7.11%. At the same time, analysts estimated a smaller increase in Gross Domestic Product (GDP).

Market forecasts are contained in the “Focus” report, released on Monday (23) by the Central Bank (BC). The data were collected last week, in a survey of more than 100 financial institutions.

Market expectations for the 2021 IPCA

Source: Central Bank

The core of the 2020 inflation target is 3.75%. According to the system in force in the country, it will be considered fulfilled if it is between 2.25% and 5.25%. Thereby, the market projection is increasingly above the ceiling of the target system.

The inflation target is set by the National Monetary Council (CMN). To achieve it, the Central Bank raises or lowers the economy’s basic interest rate.

In 2020, pressured by food prices, the IPCA was 4.52%, above the center of the target for the year, which was 4%, but within the tolerance range. It was the highest annual inflation since 2016.

For 2022, the financial market rose from 3.90% to 3.93% the inflation estimate. It was the fourth straight high in the indicator. Next year, the central inflation target is 3.50% and will be officially met if the index fluctuates from 2% to 5%.

In the case of the Gross Domestic Product (GDP) of 2021, financial market economists reduced the estimate for the growth from 5.28% to 5.27%.

GDP is the sum of all goods and services produced in the country and serves to measure the evolution of the economy.

For 2022, the The market lowered its forecast for GDP growth from 2.04% to 2%.

Although the economy has shown a reaction in late 2020 and early this year, despite the Covid-19 pandemic, political tensions and “fiscal risks” (doubts about the sustainability of public accounts) have contained the forecasts of high activity in last weeks.

The financial market too maintained at 7.50% per year the forecast for the Selic at the end of 2021. As a result, analysts continue to estimate an increase in interest rates in 2021.

In March, the first increase in almost six years, the basic rate of the economy was increased by the BC to 2.75% per year. In May, the Copom raised the interest to 3.5% per year and, in June, the rate increased to 4.25% per year. Last week, the rate rose to 5.25% per year.

By the end of 2022, financial market economists maintained the expectation for the Selic rate to 7.50% per year, which presupposes stability of the basic interest rate in the economy for the coming year.

  • Dollar: the projection for the exchange rate at the end of 2021 remained at R$ 5.10. By the end of 2022, it was stable at R$5.20 per dollar.
  • Trade balance: for the balance of trade balance (resulting from total exports less imports), the projection for 2021 rose from US$ 69.70 billion to US$ 70 billion as a positive result. For next year, the estimate of market specialists increased from US$ 62.80 billion to a surplus of US$ 63.50 billion.
  • Foreign investment: the report’s forecast for the entry of foreign direct investment in Brazil this year continued at US$ 54 billion. For 2022, the estimate dropped from US$66.99 billion to US$66 billion.

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