Perception of worsening fiscal situation among economists consulted by the BC drops by half

The country’s fiscal situation worsened between August and September for 46% of economists consulted in the questionnaire sent by the Central Bank to the financial market on the eve of the last Copom (Monetary Policy Committee) meeting.

The perception of a worsening in the fiscal situation fell by almost half between the last two meetings of the BC collegiate. In the comparison between June and August, 93% of respondents said they saw a deterioration in the scenario.

The result of the survey sent to analysts on September 9 was released by the monetary authority on the morning of this Wednesday (28).

Among 95 respondents’ responses, 44% considered that there had been no relevant changes in the fiscal scenario in the interval between the last two meetings, while 9% said that the situation had improved.

The questionnaire served as input for the committee’s decision on the basic interest rate (Selic), maintained at 13.75% per year, interrupting the cycle of monetary tightening.

In the survey sent before the August meeting, only 4% saw no relevant changes and 3% pointed to an improvement in the fiscal situation. Weeks earlier, the Jair Bolsonaro (PL) government had approved a PEC (proposed amendment to the Constitution) releasing boosted social benefits to the population amid the presidential race.

The constitutional amendment, at an estimated cost of BRL 41.25 billion, authorized the expansion of payments above the spending ceiling, overruling tax legislation a few months before the elections.

In late August, the Bolsonaro government presented its 2023 Budget proposal with an average benefit of BRL 405 for Auxílio Brasil, below the permanent floor of BRL 600 promised by the main presidential candidates. The renewal of the tax exemption on fuel is another question still open.

In the minutes of the last meeting, the Copom highlighted that the permanent increase in public spending and the uncertainty about this trajectory next year could raise inflation expectations “as they put pressure on aggregate demand and worsen expectations about the fiscal trajectory”. .

“The committee reiterates that there are several channels through which fiscal policy can affect inflation, including its effect on activity, asset prices, the degree of uncertainty in the economy and inflation expectations,” he said.

If the maintenance of the tax exemption on fuel materializes next year, the Copom anticipated that it will re-emphasize intervals that include the first quarter of 2023. Currently, the collegiate is using the inflation accumulated in 12 months until the end of the first quarter of 2024 as a monetary policy horizon.

In the pre-Copom questionnaire, the median of economists’ projections for the potential impact of the tax measures implemented by the government is a reduction in the IPCA (Broad Consumer Price Index) by 2.5 percentage points in 2022 (90 responses) and an increase of 0.6 point in 2023 (85 responses).

Economists, however, reported in the survey that they have incorporated into their inflation expectations 2 percentage points down this year (92 responses) and zero impact in 2023 (87 responses).

According to the Focus bulletin released on the eve of the Copom, the market estimate for the 2022 IPCA had dropped for the 12th consecutive week, from 6.4% to 6%, and the forecast for 2023 had dropped from 5.17% to 5.01%.

In the Copom reference scenario, inflation projections dropped to 5.8% this year and remained at 4.6% for 2023. For 2024, the collegiate marginally raised the forecast to 2.8%.