Santander Brasil worsens economic scenario for Brazil and sees Selic at 11.5% in 2022

Santander Brasil’s macroeconomics team revised projections for the Brazilian economy and now expects a 1% expansion for the Gross Domestic Product (GDP) in 2022, from 1.5% growth previously, while the Selic should end next year at 11 .5%, from a previous estimate of 9%.

Ana Paula Vescovi and her team highlighted that there were important signs of changes in fiscal policy, especially in the legal framework of the spending ceiling, which has been the main fiscal anchor in recent years, and drew attention to the high degree of uncertainty about the direction of the economic policy.

For 2021, Santander Brasil maintained its forecast of a 4.9% increase in GDP, but for 2023 it cut its forecast of 0.8% growth for stability. In the case of Selic, the expected rate for the end of this year changed from 8.25% to 9.25% and from 7% to 9% at the end of 2023.

The Economic Policy secretary at the Ministry of Economy, Adolfo Sachsida, acknowledged on Friday that the prospects for the Gross Domestic Product (GDP) had worsened for 2022, but sought to emphasize that the country is on the path of fiscal consolidation despite the change in Spending ceiling rule.

In a live promoted by Genial Investimentos, when asked about the performance of the economy next year, he acknowledged that there was an impact on the numbers, without specifying them.

“Unfortunately, the scenario has worsened,” admitted Sachsida, citing a more challenging external environment, with the possibility of an energy crisis in Europe and a supply crisis in China, and marked by problems of breaks in production chains.

“The financial conditions have unfortunately worsened, it is evident that this has an effect on our projections”, completed the secretary.

In relation to the IPCA, the bank now calculates increases of 9.6%, 5.2% and 3.5% in 2021, 2022 and 2023, from a previous forecast of 9%, 4.7% and 3.3%. For the exchange rate, it forecasts the dollar at 5.50 reais this year (from a previous estimate of 5.35 reais), rising to 5.70 reais next year (from 5.55 reais). For 2023, it held at 5.20 reis.

The Precatório PEC, approved in the first round in the plenary of the Chamber of Deputies this week, “clearly surprised the markets (including us), both in terms of the amount of additional expenses proposed, but also in terms of the ‘legal vehicle’ used to loosen the budget constraint in 2022”.

The bank’s team considered that the changes still need to be approved at other stages in the National Congress, but that the discussion has already had an impact on market conditions —with a strong increase in volatility in Brazilian asset prices— and resulted in less optimistic economic expectations .

Adolfo Sachsida says he has no doubts that the PEC will be approved in Congress, while defending the changes promoted by the text.

For the secretary, the change in the window of correction of the growth of public spending by the IPCA of the previous year, compared to the current system that considers the 12 months accumulated until June of the previous year, represents an “advancement”, since an important part of the mandatory expenditures of the Union is corrected by the INPC from January to December of the previous year.

Santander Brasil economists also estimate that the government’s gross debt will stand at 81.2% of GDP in 2021, rising to 87.5% in 2022 and to 94.6% in 2023. The previously projected percentages were 80.7% , 83.8% and 87.8%.

The net debt, they calculate, should be at 58.7% of GDP this year, 62.6% next year and 67.8% the following year, compared to previous estimates of 58%, 60.5% and 64.1%. The primary result of the public sector should be -0.3% in 2021, going to -1.7% in 2022 and -1.3% in 2023, they calculate, from -0.5%, -1.3% and -1.1% previously.