The analysts’ mood with the Brazilian economy this year has improved, in the wake not only of a higher-than-projected carry over from 2021 to 2022, but also of stronger current data for the first and second quarter. The assessment is that the first half of the year will be positive, despite the discomfort with rising inflation, due to the recovery of employment, the normalization of services and the extra drive to consumption and credit with government measures. For the second half of the year, however, when the effects of monetary policy on activity should become clear, a falling GDP are expected. In addition, estimates for growth in 2023 waned throughout the year.
The Focus survey’s median of expectations for the 2022 GDP went to 0.7% from 0.3% at the beginning of the year – but there were projections of recession. Financial institutions have promoted revisions to numbers closer to 1%, as did Safra (to 0.8% from 0.2%) and Barclays (to 1% from 0.3%) last week. “Retail trade and agriculture have contributed to economic activity in the first quarter of 2022, proving more positive than anticipated,” says Safra, raising its GDP estimate for the period to 0.7% from 0.3%.
The still ongoing normalization of services – especially those provided to households, but also government services – will be a “big driver” for this year’s GDP, especially in the first quarter, points out Wether Vervloet, economist at ACE Capital. The company, who came to project contraction of 0.5% for the 2022 GDP at the turn of the year, now forecasts a 1.5% growth, with 1.1% in the first quarter and 0.6% in the second. “The data that has been coming out over the year has also been strong.”
The S&P Global service sector Purchasing Manager’s Index (PMI), for example, reported its highest growth in 15 years in April and helped push the private sector manufacturing index (composite PMI) to the highest since October 2007, despite the slowdown in manufacturing, which is not expected to make a very favorable contribution to 2022 GDP.
Last Friday, Itaú raised its projection for inflation in 2022 to 8.5% from 7.5%, but kept the GDP at 1%. According to the team led by Mario Mesquita, the rise in commodities, fiscal stimulus and the reopening of the economy are contributing positively, and the first half is expected to be “robust”.
The expectation is 1% for the GDP in the first quarter and 0.6% in the second, “but our daily indicators at the end of the first quarter (with a relevant statistical carry over effect for the following quarter) and the beginning of the second quarter (data from April) indicate a risk of increase of this projection,” Itaú says.
Economists are also warning about employment. “The latest data on the labor market, together with the improvement in some confidence indicators, confirms more dynamism in consumption/services in the coming months,” writes Roberto Secemski, chief economist for Brazil at Barclays.
The effect of measures since the turn of the year, such as the 10.2% hike of the minimum wage and the expansion of cash-transfer program Auxílio Brasil, which replaced Bolsa Família, may have been underestimated at first, according to Rodrigo Nishida, economist with LCA Consultores. Add to that policies for this year – within the electoral logic, he notes – such as the access to the Workers’ Severance Fund (FGTS) and bringing forward the payment of 13th salary, a year-end bonus, for retired people, as well as the apparent dissaving of families.
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Igor Velecico, chief economist at Genoa Capital, adds that the increases in the state civil service’s wages and the appreciation of the exchange rate, in relation to the beginning of the year, also have an effect on the available income of families. And, in his assessment, credit is still expanding at strong rates. “It is a little more resistant,” he says.
Genoa, which has also projected a 0.5% contraction for the 2022 GDP, now expects a 1.5% increase, and Mr. Velecico indicates that a range up to 2% seems adequate. Fernando Honorato, chief economist at Bradesco, projects 1% for the GDP in 2022, but also did not rule out, during an event, the chance of reaching 2%.
More cautious, Silvia Matos, coordinator of the Macro Bulletin of the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), maintains the GDP growth projection for 2022 at 0.6% and says she will be surprised with an advance very close to 1% in the first quarter — the FGV Ibre expects 0.4%. “There was a certain bad mood, I never had recession [for 2022]. But the drivers for maintaining growth in the year are weak, services should lose steam, there is very high inflation eroding purchasing power,” she says.
Mr. Nishida, who for now projects the 2022 GDP at 0.7%, says he shares the feeling that activity is stronger, at least in the short term. “But we are a little wary of revising too much upward. It’s still a complicated scenario, with several shocks. Internationally, you have the war and, recently, circulation restrictions in China, which threaten to make supply chains worse again.”
The effect of the strong cycle of interest rate hikes underway since March 2021 is also expected to affect growth in 2023. The projections for next year’s GDP expansion went to the current 1% from 1.8% at the end of December 2022.
Source: Valor International