Pessimism about GDP takes over the market

posted on 09/07/2021 06:00

For Sergio Vale, the trend is for the economy to worsen until the elections - (credit: Rosana Hessel/CB/DA Press - 3/1/20)

For Sergio Vale, the trend is for the economy to worsen until the elections – (credit: Rosana Hessel/CB/DA Press – 3/1/20)

Pessimism in relation to the economy took over the market and estimates for the growth of the Gross Domestic Product (GDP) continued to fall. The worsening of projections for inflation ends up making a rise in the basic interest rate (Selic), currently at 5.25%, inevitable, which should curb activity. Analysts warn that an improvement in expectations will depend on rains that ease the water crisis, and a more stable political scenario – which is unlikely, as President Jair Bolsonaro (no party) is betting on an institutional crisis to avoid defeat election in 2022.

“The growth of 2021 is given, and the market is making adjustments after falling 0.1% in GDP in the second quarter. But what matters is the trajectory for 2022. It is clear that GDP will come below the 2% and 2.5% expected at the beginning of the year. Now, something closer to 1.5% to 1% is expected, if there is no energy rationing”, warned the chief economist of JF Trust, Eduardo Velho. According to him, the Central Bank will have to raise the Selic to at least 8.5% at the end of the high cycle, started last March, to “at least” manage to bring inflation to the center of the target in 2023 “A rate of 8.5% will be the floor for the Selic at the end of the cycle,” he said.

In Velho’s assessment, it will be very difficult to reverse the pessimistic scenario for 2022. “It would be necessary to have very strong stability from an institutional point of view, because the international context will no longer help the Brazilian GDP,” he said. According to him, the trend is for deceleration, due to the reduction of monetary stimuli and the increase in interest rates abroad. “Central banks are already raising interest rates. A very positive change is needed to offset the rise in interest rates and the drop in consumption due to the shrinking income of Brazilians, which is being eroded by inflation,” he added.


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For the fourth week in a row, financial market analysts reduced their GDP growth forecasts for this year. The median of estimates by economists heard by the Central Bank in the Focus bulletin, released yesterday, rose from 5.30% to 5.15% in this period. The median for next year’s GDP dropped from 2.05% to 1.93%.

Estimates for this year’s Extended Consumer Price Index (IPCA) have been rising for 22 weeks and are currently at 7.58% — double the center of this year’s inflation target of 3.75 %. For 2022, the goal is 3.5%, but the median of Focus has risen to 3.93%.

Sergio Vale, chief economist at MB Associados, forecasts increases of 4.7% in this year’s GDP and 1.4% in next year, but he admits that the bias is downward, given the anticipation of the climate of elections by Bolsonaro. “It would only be possible to revert if there was a radical change for the better in the president. As this should not happen, the trajectory is of constant deterioration until the election, at least”, he summarized.

The chief economist at Banco Alfa, Luis Otavio Souza Leal, has just revised the GDP growth forecast for this year from 5.4% to 5.2% and maintained at 2% the estimate for the expansion of the economy for next year. For him, it is possible to reverse the pessimistic picture, if there is no rationing. “The water crisis is what will define growth, inflation and even the election. No country grows with the risk of rationing on the radar”, he warned.