Farm reduces official GDP growth forecast to 1.61%

The Secretariat for Economic Policy (SPE) of the Ministry of Finance reduced the projection for growth in the Gross Domestic Product (GDP, sum of goods and services produced in the country) from 2.1% to 1.61%. The estimate for inflation increased. The forecasts are in the Macrofiscal Bulletin released this Friday (17).

According to the Ministry of Finance, the previous projection, released in November last year, minimized the effects of high interest rates on the economy and on the credit market. “These effects (economic slowdown) were already partially verified during the last quarter of 2022, when the economy contracted by 0.2% at the margin, and credit concessions started to slow down more sharply”, highlighted the report.

According to the SPE, both the service sector and the industry should be affected by the drop in demand caused by the rise in interest rates and the contraction of credit. “The slowdown in the economy should occur both in the service sector and in the industrial sector. The high indebtedness and income commitment of the population should affect the pace of activities in the services sector.”

According to the Ministry of Finance, the slowdown in industry and services is likely to occur, even with the planned social protection measures, such as a real increase in the minimum wage, an increase in the Income Tax exemption range, the new Bolsa Família and the Unrolls, debt renegotiation program.

Inflation

The inflation forecast based on the Extended National Consumer Price Index (IPCA) increased from 4.6% to 5.31%. The estimate is above the inflation target for the year, set by the National Monetary Council (CMN) at 3.25%, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit is 4.75%.

According to the SPE, food and industrial goods inflation should slow down in the coming months. However, regulated (administered) prices should rise more than initially forecast, which justified the upward revision of the projection for the IPCA.

The National Consumer Price Index (INPC), used to establish the value of the minimum wage and correct pensions, should end this year with a variation of 5.16%, as forecast by the SPE, against 4.9% predicted in the previous bulletin, released in November last year. In the projection for the General Price Index – Internal Availability (IGP-DI), which includes the wholesale sector, the cost of civil construction and the final consumer, it fell from 4.55% to 3.85%.

Other parameters

The report also updated forecasts for public accounts. The projected primary deficit (a negative result in the government’s accounts excluding interest on the public debt) dropped from R$125.99 billion, the figure forecast at the beginning of the year, to R$99.01 billion.

The value incorporates the package of fiscal measures announced in January . At the time, the Minister of Finance, Fernando Haddad, announced that he expected a drop in the deficit to around R$ 100 billion this year.

As for the Gross Debt of the General Government (DBGG), the main parameter used to compare the indebtedness of countries, the forecast dropped from 79.1% to 77.6% of GDP.

Mid-term

Despite acknowledging the economic slowdown in 2023, the SPE expects growth to recover in 2024, if the new fiscal anchor is approved that will replace the spending ceiling, and the tax reform, which would allow for a structural drop in interest rates and stimulate the investment and consumption. The secretariat also predicts that the economy may grow more in the coming years with the transition to a development model based on environmental concerns.

“The focus of the expansion should be the transition to a sustainable low-emissions economy, with great potential to be explored in the coming years. Considering these factors, the projection is for growth acceleration in 2024, to 2.3%. In the following years, the activity should grow between 2.40% and 2.80% per year”, highlighted the report.