Interest, exchange rate, GDP and employment: what to expect from the Brazilian economy in 2024?

The Brazilian economy surprised analysts in 2023. With a growth forecast of just over 1% from the International Monetary Fund (IMF) at the beginning of the year, the Brazilian Gross Domestic Product (GDP) is expected to reach growth of 3% in the year. Unemployment also surprised positively, closing the year with a rate of 7.7%, the lowest since 2015.

The year was also one of a thorny agenda that the Minister of Finance, Fernando Haddad, had to face in Congress. In the end, he ended up approving the tax reform that had been in the Senate and Chamber's drawer for more than 30 years and the new fiscal rule for the government. But what to expect for 2024? A This is Money listened to experts to talk about GDP, interest, inflation, exchange rate and employment for next year.

Exchange

“The fundamentals of Brazil's external accounts favor an appreciation of the real, due to the strong trade balance, which has been translating into a net inflow of foreign exchange that has not occurred for many years. Furthermore, since November the external environment has been more favorable, with the market starting to price that interest cuts in the US will begin in March 2024, with the Fed reducing the base rate by around 1.50 pp in the next year. However, for the real to have a sustained appreciation trajectory, it is essential that the government here does not abandon its commitment to some fiscal discipline”, said the chief strategist at Warren Investimentos, Sérgio Goldenstein.

Inflation

“Experts’ expectation is that inflation will return to the center of the target, which is 3.5%. With inflation slowing in the second half of 2023, it is likely to be below the Central Bank's target in early 2024. It is necessary, however, to understand that external factors leading to an increase in commodity prices, for example, may change these expectations”, said Marcos Crivelaro, finance professor at Fundação Vanzolini.

Fees

“With the new fiscal framework and the maintenance of the inflation target at 3%, there was a partial re-anchoring of inflation expectations and an appreciation of the exchange rate, which opened space for the BC to begin the process of reducing interest rates in August, so technical and not political. However, there is no guarantee that conflicts between the government and the monetary authority will not happen again in 2024, especially if the slowdown in activity and the job market is greater than expected. With the change in the composition of the BC Board, analysts will be paying attention to whether the Copom will continue to conduct monetary policy in a technical manner or whether there will be greater leniency with inflation”, pondered Goldenstein.

GDP

“For 2024, the expectation is that growth will be lower, in the range of 1.5% to 2%. However, there are some factors that could lead to surprises in Brazilian GDP in 2024, such as the recovery of the world economy, the increase in Brazilian income that generates changes in domestic demand and the increase in private investments supported by the improvement in the business environment” , Crivelaro pointed out.

Job

“The expectation is that the unemployment rate will continue to fall in 2024, but at a slower pace than in 2023. The projection is that the rate will be around 7.0% at the end of next year. For the unemployment rate to continue to fall, it is important that the Brazilian economy continues to grow sustainably. This must be done through public policies that encourage productivity, innovation and entrepreneurship. Furthermore, it is important that more formal jobs are created”, concluded Crivelaro.

Tax reform

Approved by the National Congress, the tax reform came out of the drawer after more than 30 years. Its text states that it should begin to come into force in 2026 and will only be fully implemented in 2032. Experts believe that its main function will be to reduce bureaucracy and simplify the Brazilian tax system, which could benefit the entire society.

“For the average citizen, changes in the international sphere seem extremely distant, but Tax Reform must reach all layers of the population, directly or indirectly. Increased competitiveness on the national and international scene can bring better prices and higher quality of products and services offered directly to Brazilians!, explained Marina Chaves, specialist in tax compliance and tax law at Briganti Advogados.