Government will cut GDP projection for 2022; growth should be 1.5%

The Ministry of Economy will cut the growth projection of the GDP (Gross Domestic Product) in 2022. According to government sources heard by the sheetthe rise is expected to be 1.5%, below the current estimate of 2.1%.

The new forecast should be announced by the ministry next Thursday (17). The data serves as a reference for the bimonthly review of the Budget, which will be completed by March 22nd.

The cut in the projection indicates that, in the year in which President Jair Bolsonaro (PL) will seek re-election, the Brazilian economy should suffer a more intense slowdown than initially calculated by the government.

Last year, Brazilian GDP grew 4.6%, after a 4.1% drop in 2020, the year that concentrated the most devastating effects of the Covid-19 pandemic.

Economy Minister Paulo Guedes has already publicly admitted that the expectation was for a slowdown in 2022.

One of the factors that contributes to the brake on economic activity is the rise in interest rates. To try to contain inflation, the Central Bank has already raised the basic interest rate (Selic) to 10.75% per year, and new highs are awaited by the market.

Despite this, Guedes has criticized financial market analysts for what, in his view, is an excess of pessimism. In the estimates of these agents, growth will be even lower, 0.49% in 2022, according to the Focus Bulletin, released by the BC.

In addition to the impact of high interest rates, persistent inflation and weakened income also explain the less benign scenario for this year. Together, these factors play against household consumption, the engine of the Brazilian economy.

The Minister of Economy has warned, in a defiant tone, that economists are wrong in their forecasts. For him, the market underestimates Brazil’s growth potential in 2022.

“Yes, it will be a difficult year, but be careful with forecasts. If they were wrong three times, they could be wrong four times. It’s just a matter of being a little more moderate, a little calmer, depoliticizing the interpretation of economic data a little”, he warned in December of 2021. Since then, the minister has repeated that Brazil “is doomed to grow”.

Guedes’ team lists the expansion of Auxílio Brasil, which will transfer almost R$ 90 billion to low-income families this year, and investments as boosting factors for the economy.

In February, the SPE (Secretariat of Economic Policy) released a study in which it points to private investments of R$ 78 billion in 2022 alone, contracted from infrastructure auctions carried out under the PPI (Investment Partnership Program). The amount is BRL 38 billion greater than that invested in 2021 in the contracts linked to the program.

The government is also preparing additional measures to ensure sustained economic activity. In addition to unlocking credit for small businesses and consumers, Bolsonaro plans to announce on Thursday a new round of withdrawals from the FGTS (Fundo de Garantia por Tempo de Serviço).

as showed the sheet, the measure should benefit around 40 million workers, with redemptions of up to R$1,000 per shareholder. The total value of the release could reach R$ 30 billion.

The announcement of the positive measures is scheduled for the same date as the negative GDP revision.

In addition to cutting the growth forecast, the government will reassess its inflation estimates upwards.

The changes should have an impact on the assessment of the 2022 Budget. Every 0.1 percentage point less GDP growth takes R$695.3 million out of revenue. On the other hand, each 0.1 point more inflation injects R$ 651.1 million.

As the revision in inflation must be of a magnitude greater than the change in GDP, the tendency is for the government to observe a net gain on the revenue side.

The balance will help accommodate recent tax cuts. The government announced a linear reduction of 25% in the IPI (Tax on Industrialized Products), with an impact of almost R$ 10 billion for the Union.

Last Friday (11), the president sanctioned the law that exempts diesel, gas and aviation kerosene from charging PIS/Cofins. The measure generates a waiver close to R$ 20 billion.

But pressure on the Budget will continue, as the extra revenue cannot be used for new government spending. The spending ceiling rule limits expenditure growth to the variation of inflation.

Technicians in the economic area have already mapped the holes in the Budget, one of them in the Economy itself. Guedes’ portfolio suffered a 50% cut during the vote in the National Congress, and some of its bodies may paralyze activities in the first half of the year.