Haddad calls for caution regarding first quarter GDP

O growth of 1.9% of the Gross Domestic Product (GDP, sum of goods and services produced in the country) in the first quarter is in line with the projections of the Ministry of Finance, said, this Thursday afternoon (1st), the Minister of Farm, Fernando Haddad. Although the number came in above financial market estimates, Haddad urged caution and said that the data were inflated by the performance of agribusiness.

The minister asked to focus on the performance of the economy in 2024, so that the country can start next year by creating jobs in a likely scenario of falling interest rates. “We need to start thinking about 2024 to keep the economy generating jobs. We need to be clear that we have a very good opportunity, with inflation under control and future interest rates falling significantly”, declared the minister.

According to Haddad, the combination of employment and falling inflation opens an “important window” for the Central Bank (BC) to reduce interest rates in the coming months. This Wednesday, the minister had lunch with the president of the Central Bank, Roberto Campos Neto, in an appointment not mentioned in the agendas of both.

Haddad avoided nailing the moment he considers ideal for the BC to start reducing basic interest rates. “My opinion is already known,” he said. According to him, the Ministry of Finance is doing its part with the approval of the new fiscal framework and with the commitment to reduce the primary deficit (a negative result in government accounts without interest on the public debt).

“The fiscal effort will continue until the end of the year to guarantee the results of the new fiscal framework. All this is coming together to enter a cycle of sustainable development”, added the minister. Haddad said he had spoken with Campos Neto about a possible change in the inflation targeting system.

On the 29th, the National Monetary Council (CMN) will define the inflation target for 2026 and reveal whether it maintains the targets for 2024 and 2025, set at 3%, with a tolerance margin of 1.5 points up or down.

Planning

Haddad’s call for caution contrasts with the forecasts of the Ministry of Planning. In a note, the folder informed that the performance of GDP in the first quarter indicates that the economy may grow more than predicted by the financial market this year.

“If there is no increase in activity for the other quarters in 2023, the Brazilian GDP will grow at least 2.3%, significantly surpassing the market projection”, informed the Planning in a note. Victim of covid-19, minister Simone Tebet is resting this Thursday.

The Planning note highlighted that GDP growth in the first quarter is the highest since the last quarter of 2020, when the economy was starting to recover from the beginning of the covid-19 pandemic. In addition to the result of the agricultural sector, which had the highest growth since 1996, the portfolio highlighted the recovery of the services sector, which has grown for 11 consecutive quarters and has performed 6.5 percentage points more than at the beginning of the pandemic.

In the first quarter, the agricultural sector grew by 21.6% and services increased by 0.6% in the quarter. The negative highlight was the industry, which retreated 0.1%, with retraction for the second consecutive quarter.