Goldman Sachs revises Brazil’s GDP growth from 1.5% to 0.8% in 2022

Goldman Sachs lowered its forecast for the growth of the Gross Domestic Product (GDP) of Brazil in 2022 to 0.8%, warning of a scenario of heated inflation, tighter monetary conditions and growing domestic political-fiscal risks.

Previously, the US bank projected an advance of 1.5% of GDP next year. For 2021, Goldman Sachs maintained its growth estimate of 4.9%.

In a report on the economic outlook for Latin America, the bank cited “very high inflation against a background” and the consequent “shift to a significantly restrictive monetary policy position by the end of 2021” as justifications for its projection.

Goldman Sachs expects the Central Bank to raise the Selic rate to 11% per annum at the end of its current monetary tightening cycle. Currently, the basic interest is at 7.75%, after the autarchy promoted an increase of 150 basis points at the last Copom meeting.

In addition to the prospect of higher borrowing costs, the report also warned of worsening confidence indicators, deteriorating governance conditions and rising political and fiscal risk premiums as impediments to economic growth.

“The inability of authorities to plan and articulate a comprehensive fiscal adjustment program could be deleterious in this context, potentially triggering a negative spiral of rising financing costs and deteriorating sovereign credibility,” Goldman Sachs said.

His comments come amid pressure from the Jair Bolsonaro administration for more spending on social benefits in the 2022 election year. “plan A” to make the payments of aid to the population feasible.

And the high odds that next year’s presidential election will be “too polarized” add to the risks facing economic activity, said Goldman Sachs.

“In Brazil, political and institutional noise and friction have been a constant since 2018, compromising the progress of fiscal reforms and keeping political uncertainty high.”