A global economy on the brink of recession, falling commodity prices and high domestic interest rates are three headwinds that will lead the Brazilian economy to grow just 0.3% next year, according to projections by Citibank.
The institution also assesses that the effect of the reopening of the economy on household consumption, a factor responsible for the higher-than-expected growth in 2022, will not be repeated in 2023. Especially in view of the high consumer indebtedness.
The bank also claims that the factors responsible for a slowdown in the Brazilian economy that has already been underway since the third quarter will continue to contribute to lower inflation, of 4.5% next year, with a relatively stable exchange rate.
Citi does not expect interest rates to rise next year, and estimates that the Brazilian Central Bank may start to reduce the basic rate in August, from the current 13.75% to 10.5% per annum in December.
Only inflationary pressure brought about by a new spike in oil prices or a significant exchange rate devaluation, for example, could change the Central Bank’s plan to reduce the Selic rate next year, according to the institution.
“If the BC has to make any adjustments in monetary policy, it is more an adjustment of ‘timing’ of the cut and less of a change of plan”, says Leonardo Porto, chief economist at Citi Brasil.
Transition PEC
Fiscal risk is seen as the main point of weakness for the country, at a time when investors are less tolerant of this issue.
Porto assesses, however, that the Lula government should promote a total expenditure of R$ 300 billion over the next four years that will not be financed by an increase in the tax burden.
The bank works with the return of federal fuel taxes in January. He also mentions the possibility of an increase in the IPI (Tax on Industrialized Products), a tax reform with an increase in the burden and cuts in tax benefits.
For him, a decreasing level of spending not financed by taxes in the next presidential term may be enough to keep the prices of assets, such as the exchange rate, close to the current level. He projects this extra expense at BRL 150 billion next year, BRL 100 billion in 2024, BRL 50 billion in 2025 and zero in 2026.
“What matters for the debt is what is not financed. The others [gastos] will only happen if you have extraordinary income. It does not impact the debt”, says the economist.
The government’s gross debt should rise from 76% of GDP this year to 81% in 2023 and continue rising to almost 90% at the end of the next term, according to the bank’s projection.
The risks of more spending via public companies could change this scenario. “The performance of public banks providing subsidized credit is a very sensitive issue from the point of view of the markets. Everyone is monitoring it.”
‘cute piece’
Eduardo Miszputen, head of Global Markets at Citi in Brazil, says that the financial market should remain volatile next year, but that the country may temporarily benefit from the inflow of foreign capital in early 2023.
“We’re going to turn the year around and start to see a slightly more stable local scenario, with less unpredictability. Maybe this will bring a positive wave. People will start looking to see if there isn’t an opportunity for a one-off gain. market more than ‘trade’ in the short term”, says the executive.
“In this environment, Brazil can become the pretty piece of the equation, and we have a period of attracting international capital, mainly speculative.”
Miszputen also says that, next year, fixed income will continue to attract many investors and that he does not see a movement of migration back to variable income.
Citi predicts a slowdown in global growth from 3% this year to 1.9% in 2022. Without the China effect, the advance is close to 1%. The two plateaus are considered the threshold of an unsynchronized global recession, which will hit Europe first and then the US.
Global inflation is expected to peak at 7.2% this year and decline in 2023 to 5.6%, with developed countries still raising their interest rates.
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