Government sees higher GDP and lower inflation in 2022

The Ministry of Economy revised downwards the inflation expectation this year, decreasing from 7.9% to 7.2%, and raised the GDP (Gross Domestic Product) growth estimate in 2022, from 1.5% to 2% .

For 2023, the inflation estimate rose from 3.60% to 4.5%, while the GDP projection was kept at a high of 2.5%.

The projections released this Thursday (14) are in the Macrofiscal Bulletin, updated bimonthly by the SPE (Secretariat of Economic Policy). Previous data had been announced by the ministry in May and, as they serve as a reference to adjust budget execution, they are periodically reviewed.

The expected rate of 7.2% for the IPCA (Broad Consumer Price Index) exceeds the target to be pursued by the BC. The value set by the CMN (National Monetary Council) for this 2022 is 3.5% — with 1.5 percentage points of tolerance up or down.

The BC even already admits that the inflation target has been exceeded for the second year in a row. When the projection is confirmed, the president of the autarchy, Roberto Campos Neto, should write a new letter to the Minister of Economy explaining the reasons for the noncompliance with the objective. ​Inflation ended 2021 at 10.06%.

The Ministry of Economy’s estimate for the INPC (National Consumer Price Index) dropped from 8.1% to 7.41%. This index is used to correct the national minimum wage floor and other social benefits.

The portfolio’s projection for the IGP-DI (General Price Index – Internal Availability) jumped from 11.40% to 11.51%. This index has a wider scope to measure the rise in prices, as it also encompasses the wholesale sector and civil construction.

The new GDP projection, advanced by the Sheetreflects an improvement in the outlook for economic activity in 2022 in view of positive numbers observed in industrial production, the recovery of the service sector and the recovery of the labor market.

With the growth of activity in recent months, the market also shows optimism with the performance of GDP for this year and, like the government, has been revising its estimates upwards.

In the latest Focus Bulletin, released by the Central Bank on Monday (11), the median projection for GDP growth rose from 1.51% to 1.59%. Some financial market institutions already estimate growth of 2%.

Amid the presidential race, the Jair Bolsonaro (PL) government has approved measures that sustain economic activity.

This Wednesday (13), the Chamber of Deputies approved the PEC (proposed amendment to the Constitution) that boosts social benefits, raising the Auxílio Brasil floor to R$ 600, creating an aid to truck drivers of R$ 1,000 per month and doubling the value of the Gas Aid to around R$ 120.

At the end of June, Congress approved a cut in federal taxes on gasoline and ethanol, in addition to setting a ceiling of 17% to 18% for the collection of ICMS on fuel, electricity, transport and telecommunications.

At the beginning of the year, the government had already released an extraordinary withdrawal of R$ 1,000 to workers with resources in the FGTS (Fundo de Garantia por Tempo de Serviço).

These measures mitigate the effects of the monetary tightening promoted by the BC, which took the basic interest rate (Selic) to 13.25% per year at the last meeting, in May, and make it difficult for the municipality to control inflation.