The Institute for Applied Economic Research (Ipea) raised from 3% to 4.8% the growth forecast of the Gross Domestic Product (GDP, the sum of all goods and services produced in the country), for 2021. The revision was based on expectation of more sustained growth in economic activity in the second half of the year, with the advance of vaccination against covid-19; the more favorable external environment and the reduction of fiscal uncertainties in the short term. The review is part of the quarterly analysis of the Brazilian economy, released today (30) by IPEA.
“This greatly changes the outlook for the year’s average. When we look at GDP, we analyze what was produced throughout the year compared to what was produced in the previous year. As we have half of the year coming better than it was, this greatly improves the outlook for the whole year,” he said in an interview with Brazil Agency the director of Macroeconomic Studies and Policies at IPEA, José Ronaldo de Souza Júnior.
The projection for year-on-year growth in the second quarter is 12.6%. For 2022, researchers expect an advance of 2% for GDP. The percentage is lower than the 2.8% that had been foreseen in the March release, in IPEA’s Conjuncture Letter. The reason is the increase in the base of comparison with GDP in 2021, which will be higher than previously estimated. Even with the decline in the 2022 GDP forecast, the accumulated growth in the 2021/2022 biennium increased from 5.9% to 6.9%.
The projections take into account a scenario with control of the pandemic in Brazil through vaccination and the maintenance of a relatively stable scenario for fiscal policy in the short term, mainly with the commitment to maintain the expenditure ceiling. The analysis draws attention, however, to the possible increase in interest rates in the United States, which represents a risk factor, as it may pressure the exchange rate and interest rates in Brazil.
The IPEA also changed the projection for the Broad National Consumer Price Index (IPCA) this year, from 5.3% to 5.9%. In the 12-month period, up to May this year, the inflation rate rose from 6.8% to 8.1%, due to the impact of the rise in monitored prices and industrial goods. The analysis highlighted that the 2.1% rise in administered prices in May reflected not only the triggering of the red flag and its impacts on electricity, but also new increases in medicines, gas and gasoline.
“This banner actually increases inflation expectations and that’s why we have this new revision for inflation. It’s very significant, but, on the other hand, we now have a better perspective in terms of the dollar. This will help to decelerate the price for the producer and therefore for the consumer. Maintaining a more beneficial exchange rate trajectory, this could contribute to holding back consumer prices. That’s what we expect”, he explained.
In terms of monitored prices, the inflation projection rose from 8.4% to 9.7% this year. Industrial consumer goods should rise from 4.3% to 4.8%. In free services, except education, the expectation was changed from 4% to 4.2%. The food and education rates were kept at 5% and 3.8%, respectively.
For 2022, researchers estimated a slowdown in inflation, both for the IPCA and for the National Consumer Price Index (INPC). The IPCA should end next year at 3.9%, slightly above the 3.7% estimate for the INPC.
According to the researchers, the appreciation of the commodities exported by the country, the increase in international trade flows and the global financial conditions, which stimulate the appetite for risk, have had a positive impact on the Brazilian economy. According to the analysis, the international price of commodities reflects the resumption of global economic activity, with strong growth in recent months and a high historical level.
Brazilian exports increased, both in volume and in value. This happened because of the growth of the world economy and the increase in external prices. In the first five months of the year, exports grew by 40%, while in the same period last year it had been 12%. Reflecting the level of domestic activity, imports also recovered. The increase was 21% from January to May, compared to the same period in 2020.
The researchers concluded that from May onwards, mobility indicators increased again. Before that, they had reflected the difficulties caused by the covid-19 pandemic in Brazil. According to the analysis, there was a decrease in the evolution of mobility indicators in the four types of establishments most related to economic activity, such as retail stores and leisure places; markets and pharmacies; public transport stations and workplaces between the end of 2020 and the months of March and April 2021, which may have negatively impacted economic activity.
“Last year was very impacted by the pandemic in economic terms. This year apparently the sectors were able to better deal with the imposed restrictions and even the restrictions were not as intense as last year. This year, from what we saw, it was more in each location, but in national terms this year did not stop sectors such as industry”, said José Ronaldo de Souza Júnior.
The director of Ipea added that this year the services provided evolved as the delivery systems and this helped to maintain the activities. “The service sector, I believe is surprising, because with the worsening of the crisis that we lived through, it was expected that the impact would be greater in this period of more restrictions. People managed to produce and sell with much less impact than last year. We have better delivery, we have a better delivery scheme over the internet, WhatsApp and so on. In season [ano passado], in addition to the very big scare of an unknown disease, there was a lack of normal PPE such as masks and alcohol gel, something that today does not have this type of problem. This hurt the companies. Working in this risky environment was a learning experience”, he said.
For the researcher, with the advance of vaccination, as happens in other countries, in Brazil some segments that were suspended because of the pandemic may return to work. “Sectors of leisure, culture, recreation and tourism, which employ a lot of people and still have many restrictions because many depend on agglomeration. I think this can greatly contribute to the recovery of the economy”, observed the director of Ipea.
In the opposite direction, public accounts improved in recent months. In the year to April, federal revenues rose 16.6% in real terms. The percentage, which is higher than projections, led to an important revision of the total estimated for 2021, influencing the fall in the primary deficit forecast for the year. The forecasts for expected expenses for the year have dropped, which reduces the need for adjustments to maintain the commitment to the federal spending ceiling. For 2022, the slack should be greater to comply with the spending ceiling, as a result of the expected behavior of the price indices that will correct the ceiling and a significant portion of the mandatory
The director of Macroeconomic Studies and Policies at Ipea highlighted that debt as a proportion of GDP benefited from the primary surplus of the first four months and the nominal growth of GDP, which surprised due to the acceleration of the implicit deflator, in addition to higher real growth. As a result, there was a downward revision of the expected trajectory for the gross debt/GDP ratio in the coming years.
“The commitment to the spending ceiling was clear at the time. This sort of thing reduced the risk in the short term. It’s not that the issue is resolved, but this has contributed positively to expectations”, he said.
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