Government will raise GDP high forecast to 2.7% in 2022

The Ministry of Economy will raise the official GDP (Gross Domestic Product) growth projection in 2022 from 2% to 2.7%, according to government officials interviewed by the Ministry of Economy. Sheet. For 2023, the estimate should be maintained at a high of 2.5%.

The announcement will be made this Thursday (15) — less than 20 days before the first round of the presidential elections —, in the update of the numbers that support the bimonthly report of income and expenses, whose formulation is required by legislation.

The potential growth of GDP this year has been used by Minister Paulo Guedes (Economy) in a campaign tone at events with businessmen. Repeatedly, the head of the economic portfolio said that Brazil “is doomed to grow” and that the financial market has underestimated the country’s potential.

This Wednesday (14), at an event in Rio, Guedes again said that the economy could grow by close to 3% this year. “What was an optimistic forecast for the entire year, which was to grow 2%, has already been surpassed in six months”, extolled the minister at another event in early September.

The government’s greater optimism has been echoed in the projections of private sector economists — albeit to a lesser extent. According to the Focus bulletin, released by the Central Bank last Monday (12), the market consensus for the activity rose from 2.26% to 2.39% – the 11th consecutive positive revision in the survey.

The government’s projection of 2.7% comes on the heels of GDP growth in the second quarter, which was mainly impacted by the service sector and showed a rise of 1.2% – a percentage that positively surprised analysts.

In the calculations of the SPE (Secretariat of Economic Policy), only the result of economic activity in the first semester would be enough to guarantee a growth of 2.4% in 2022, due to the so-called statistical load. This is the positive impact of one period’s performance on the following, assuming there is no advance or recession in the subsequent period.

In a press conference at the beginning of the month to comment on the GDP result in the second quarter, the head of the Special Advisory for Economic Studies, Rogério Boueri, anticipated that the GDP estimate would be revised upwards by the government. “[O cálculo de] 2% is already dated, only cargo is already at 2.4%, and we don’t think Brazil will stop growing”, he said.

At this Wednesday’s event, Guedes even talked about an inheritance from previous quarters of 2.6%. The number had also been mentioned by the president of the Central Bank, Roberto Campos Neto, at the beginning of the month.

The lower charge on the Ministry of Economy account, according to a member of the team, is due to a technical factor: the IBGE (Brazilian Institute of Geography and Statistics) calculates the quarterly result in a series with seasonal adjustment (to discount typical effects of certain periods), which results in the largest positive inheritance, but the annual data is taken from the series without this adjustment.

The government started the year with a GDP growth forecast of 2.1%, but the figure was eventually revised to 1.5% in March, due to fears of a more intense slowdown in the economy after the post-Covid recovery.

After positive numbers observed in industrial production, in the volume of services and in the fall in unemployment, the Ministry of Economy raised the projection to 2% in July and is now preparing for a new increase.

The larger projections are calculated after a series of impulse measures were approved by the Jair Bolsonaro government (PL) in the midst of the electoral race.

In July, a constitutional amendment was enacted that released boosted social benefits to the population, raising the Auxílio Brasil floor from R$400 to R$600, creating an aid to truck drivers of R$1,000 per month and doubling the value of the Auxílio Gás a R$ $110.

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).

This package of measures mitigates the effects of the monetary tightening promoted by the BC, which took the basic interest rate (Selic) to 13.75% per year at the last meeting, in August, and will assess a residual increase at the Copom meeting of the week that he comes.

Since the first movement, when it started from its historic floor (2% per year) in March 2021, the tightening cycle has accumulated an increase of 11.75 percentage points.

In the assessment of the economic team, the monetary tightening implemented by the BC to curb inflation is unlikely to have a quick and devastating effect on activity.

With a forecast of a GDP growth of 2.5% in 2023, the ministry reinforces its conviction in the strength of the economy next year, in contrast to the pessimism of the market, which forecasts an advance of 0.5% next year. According to analysts, there is no room for such robust growth, especially given the lagged effects of monetary policy and the expected global economic slowdown.