SAO PAULO – XP revised its base scenario of expectations for the growth of the Gross Domestic Product (GDP) in 2022 from 1.7% to 1.3%, raised the projection for the dollar from R$ 4.90 to R$ 5.20 at the end of 2021 and from BRL 4.90 to BRL 5.10 for next year, and now it expects a Selic of 8.5% at the end of the monetary tightening cycle, against 7.25% before .
Estimates for the 2021 GDP continue to expand by 5.3% and for the Extended National Consumer Price Index (IPCA) for 2021 and 2022, it remains at 8.4% and 3.7% respectively.
According to Caio Megale, chief economist at XP, the changes occur because domestic risks have increased in recent weeks due to the institutional crisis and the more widespread inflation data for August. With this, he sees that the preparation of the 2022 Budget seems increasingly difficult.
“The Budget does not include the recent acceleration of inflation (which affects expenses for next year) nor political commitments that are difficult to avoid. Our account suggests pressure close to R$ 70 billion during the processing of the part”, he stated.
Despite the worsening in projections, this scenario outlined by XP’s economic team still does not contemplate what Megale classifies as the two biggest risks on the horizon: a break in the spending ceiling and a scenario of blackouts and rationing due to the water crisis.
About breaking the ceiling, Megale admits that it goes beyond precatoria not being included in the rule. Its base scenario already projects that these expenses will not be in the ceiling, but will at least be paid in full, not in installments over ten years.
“Today there is no better scenario than the one I described. Precatório is an old debt, so they can be out of the ceiling, but if the government removes Bolsa Família from the rule, then yes, we will have a rupture”, he explains.
This possibility of the social program being excluded from the spending ceiling, in the economist’s opinion, has around a 10% to 15% chance of occurring and would take his projections to another scenario, in which GDP grows less than 1% in 2022, the dollar rises to R$ 5.50 and the Selic has to be raised to 9.5% because inflation does not cool down with a tightening cycle ending at 8.5%.
The water crisis, in turn, could have even more disastrous and difficult to quantify effects. The XP team projects that a forced reduction in electricity consumption would take away 1.2 percentage points from next year’s GDP growth, which would mean an expansion close to zero considering the broker’s baseline scenario is 1.3% expansion for the period.
Other than that, the statistical load of the progress of this year’s economic activity is estimated at 0.8%, so, in practice, the country would enter into recession if this scenario were confirmed, with probable declines in GDP in the second and third quarters of the year next.
Megale calculates that a rationing is more likely to occur than a fiscal break, with an approximate 30% probability of occurring. “I’m more concerned with the supply of electricity than with the fiscal rupture”, he defends, who says he has not yet projected where the Selic, dollar and IPCA would go in this heavier scenario of the water and energy crisis.
The positive point is that abroad, in the economist’s opinion, will not be an obstacle to the Brazilian economy. According to him, the latest employment and inflation data from the United States point to a scenario in which activity is neither so strong that it is necessary to raise interest rates nor so weak as to cause a recession.
In an interview last week with InfoMoney, the economist also stated that despite the attention to the advance of the delta variant of the coronavirus, the gradual withdrawal of monthly purchases of bonds carried out by the Federal Reserve, and the Chinese regulatory environment, nothing will be as important as the domestic scenario. “The external scenario will be favorable. What we need is to do our homework here”, he defends.
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