IMF downgrades Brazil’s 2022 growth forecast to almost zero

​The IMF (International Monetary Fund) has lowered its forecasts for the growth of the Brazilian GDP (Gross Domestic Product) in 2022 from 1.5% (last October) to 0.3%. The review is contained in the World Economic Outlook report, released this Tuesday (25) in Washington DC

In the document, the agency also reduces its expectations for the country in 2023: now, it predicts that Brazil will grow 1.6% next year, against 2% of the previous estimate.

Among 15 large economies that had their metrics revised (including China, USA, Mexico, South Africa and India), Brazil suffered the worst drop proportionately and was the only one to stay below the 1% growth rate in 2022. .

On average, although the growth expectation for Latin America has also declined (0.6 percentage point less), the region is expected to grow 2.4% in 2022, a rate eight times higher than that of Brazil. If compared to the projection made by the fund for emerging markets, the country’s disadvantage is even more significant: developing countries should grow 4.8% compared to 0.3% for Brazil.

“Expectations (for growth) have weakened in Brazil, where the fight against inflation has led to a strong monetary policy response, which will weigh on domestic market demand. A similar dynamic occurs in Mexico, albeit on a smaller scale,” the IMF said. in your report.

The fund alludes to the increase in inflationary pressure: according to the IBGE, the average price increase in Brazil closed the year 2021 at 10.06%. This is the highest rate since 2015, well above the 3.75% target set by the National Monetary Council.

In response, the Central Bank activated tools of the so-called “monetary policy”: in December, it increased the basic interest rate, the Selic, to 9.25% per year. With this, the Brazilian consumer market should slow down, which cools the rise in prices but also the national economic activity.

Serial reductions in Brazil

In October, the IMF had already signaled a reduction in Brazil’s growth expectations. At the time, the rate went from 1.9% to 1.5%. The IMF’s chief economist, Gita Gopinath, said at the time that the review envisaged the “expected effects of the increase in interest rates on monetary policy, given the high inflation in Brazil”.

In response, Economy Minister Paulo Guedes harshly criticized the IMF review. “They will make mistakes again. We will grow twice as much as they are saying,” Guedes said in October, during a visit to the US capital Washington. By Guedes’ calculations, Brazil would grow at least 2% in 2022.

According to the minister, the IMF lost credibility after estimating that Brazil’s GDP would plummet by more than 9% in 2020. The decline, in fact, was 4.1%, thanks to income transfer measures in the pandemic and preservation of job.

In December, after signing the waiver of the IMF mission in Brazil, Guedes stated that “they (IMF technicians) did not need to be here for many years. They stayed because they like feijoada, football, good conversation, and occasionally criticize a little bit and make the wrong prediction”.

At the end of the year, Guedes and the economic team dealt with strong external pressure due to the Bolsonaro administration’s decision to review the spending cap rule to accommodate expenses with the government’s new social program and the payment of parliamentary amendments. The fiscal maneuver, which required changes in the payment rules for precatories to generate cash, was poorly received by the international market.

The world will grow less in 2022

Globally, the new IMF report predicts that the world economy will grow by 4.4% — 0.5 percentage points less than the October forecast.

The reduction was driven by declines in growth expectations in the world’s two biggest economic forces — the US and China. In the American case, the reduction in the scope of the infrastructure investment package proposed by the American president, Joe Biden, and the lack of inputs for industry and manpower explain the 1.2 percentage point reduction in the growth rate (now in 4%).

In China, problems in the real estate market and the slower-than-expected resumption of domestic consumption are the explanation for the 0.8 percentage point decline in the growth projection for 2022, at 4.8%.

Gopinath stated that “the global recovery faces several challenges as the pandemic enters its third year. The rapid spread of the omicron variant has led to new mobility restrictions in many countries and increased labor shortages. weigh on economic activity and are contributing to rising food and energy inflation”.

According to her, the countries’ high public debts and inflation, which is high all over the world, reduce the response capacity of nations to cushion these shocks in the economy.

Gopinath, however, points out that despite the huge number of cases caused by the omicron, the apparent lower severity of the disease and the fact that some countries are already on the wane of the wave of infections lead the IMF to believe that its negative impacts must be overcome. in the second quarter of 2022.