New government needs to signal fiscal policy to reduce uncertainties, says economist at Santander

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In the opinion of the chief economist at Banco Santander in Brazil, Ana Paula Vescovi, the elected government of Luiz Inácio Lula da Silva (PT) needs to prioritize the disclosure of its fiscal policy and which reforms it intends to implement. According to her, the two pieces of information are vital to reduce uncertainty and anticipate the interest rate reduction cycle.

“Brazil’s biggest challenge is to implement an efficient fiscal policy, and we are waiting for the announcement of the next government,” said the economist who is also a columnist for Sheet. “With this information, the market will be able to make an account and even help the Central Bank to start the interest reduction cycle.”

In the economist’s assessment, the tax reform, which has already been discussed in Congress, is ripe for implementation and should be a priority.

Vescovi presented projections for Brazil during a panel that discussed the direction of the economy for Latin America during the Santander Bank International Conference in Madrid, Spain.

This year, the bank’s projections point to a primary surplus of 1%. However, the economist warns that Brazil still has a structural deficit and that the expectation is that there would be a deficit of 1.4% next year.

Vescovi reinforced that Brazil is still facing a contractionary cycle to contain the rise in prices. The BC) took the interest rate from 2% in 2020, practically negative interest, to a rate of 13.75% this year, at the same time that the monetary tightening gained global scale.

As Brazil has advanced in raising interest rates, inflation in the country has already started to subside and everything indicates that the cycle of easing the basic rate should start in June of next year, while most economies will still be in the cycle of tightening, highlighted the economist.

Inflation in 12 months in Brazil, which reached 12% in June, has already dropped to 7% in September. The projection is that it should be at 5.4% at the end of this year, and at 5% at the end of next year, with a still slow convergence towards the center of the target of 3.5%.

The contractionary cycle of fighting inflation will compromise growth, taking almost two percentage points from GDP (Gross Domestic Product). The forecast for this year is a 2.8% increase in GDP. But the increase will be more timid next year, at the level of 0.7%, signaled the economist.

Vescovi’s expectation is that the Brazilian economy should be helped by a robust result from agriculture and by the recovery of family income, which tends to improve consumption. Brazil will also benefit next year from commodity prices, which should continue to rise.

The journalist traveled at the invitation of Santander

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