Treasury sees GDP growth in 2024 approaching 3% and cites uncertainty and inflationary risk

The better-than-expected performance of activity in Brazil in the first half of the year should lead the government to revise upwards the official forecast for activity in the year, currently at 2.5%, members of the economic team pointed out, also citing uncertainties about interest rate policy and a possible inflationary risk with stronger growth.

Finance Minister Fernando Haddad predicted that the ministry’s new projection to be released in September should exceed 2.7% or 2.8%, while Planning Minister Simone Tebet said the figure could be closer to 3%. The Finance Secretariat for Economic Policy (SPE), in turn, sees a level close to that observed in 2023, when the economy accelerated 2.9%.

Data released on Tuesday by the Brazilian Institute of Geography and Statistics (IBGE) show that GDP grew again in the second quarter compared to the previous three months, at a rate of 1.4%, significantly above the expected 0.9% growth indicated in a Reuters survey.

In an interview with journalists, Haddad stated that stronger growth than initially estimated could lead to positive revisions to tax revenue, but mentioned concerns about possible inflationary pressures.

“We have to pay close attention to investment because it is what will guarantee growth with low inflation. If we do not increase our installed capacity, there will come a time when we will have difficulty growing without inflation,” he said, pointing out that investments performed better than expected in the last quarter.

“Some industries still have a lot of room to increase production, but this does not affect the economy as a whole. There are sectors that are already attracting attention and investments will have to accelerate so that there is no bottleneck in supply.”

The Central Bank’s Monetary Policy Committee meets in September to define the level of basic interest rates, currently at 10.50% per year, after having included in its scenario a possible increase in the Selic rate if necessary to bring inflation to the 3% target.

In a technical note, the SPE assessed that the country’s growth rate should remain strong, but pointed out uncertainty in the scenario ahead, mainly related to the BC’s monetary policy decisions, “which could harm the recovery of the credit market”.

The SPE is betting that the acceleration of activity will be guided by the buoyant labor market and better credit conditions compared to 2023.

“The expected expansion for more cyclical sectors and for domestic absorption should drive growth, being partially offset by expectations of a decline in agricultural activity, a slowdown in extractive production and a lower contribution from the external sector,” the secretariat pointed out.

The ministry highlighted that the negative impacts of the rains in Rio Grande do Sul on activity were partially mitigated by support policies for families, companies and municipal and state governments, as expected.

President Luiz Inácio Lula da Silva said in a post on the social network Threads that the quarter’s growth “adds to the increase in jobs, family consumption and a better quality of life”.