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Economists expect GDP downfall in second half

Economists were taken by surprise with the data for the Brazilian economy, especially in March, and raised their projections for the GDP in the first quarter of this year, opening space for a more positive view of the activity both in the following three months and in 2022. The year, however, is likely to have two opposite configurations: a stronger economic performance in the first half of the year and a likely technical recession (two consecutive quarters of falling GDP at the margin) in the second half.

The GDP is expected to have grown 1% in the first quarter of 2022, compared to the fourth quarter of 2021, seasonally adjusted, according to the median of the projections of 82 financial institutions and consulting firms consulted by Valor. Almost half of the respondents bet on even higher increases, with the maximum reaching 2.6%, for a minimum of 0.1%. Only two banks expect a drop. In comparison with the same period in 2021, the median of the projections of 76 institutions indicates a high of 1.7% from January to March this year.

The forecasts for the GDP in 2022 have moved a lot and in a short time. Since the last Valor survey, with 72 institutions and published on May 12, the median went to 1.4% now from 0.8%, with 96 estimates. The projections vary from zero to 2%. The Central Bank’s Focus survey, which serves as a compass for the market and the monetary authority, usually has between 80 and 100 respondents, but has not been published since April 29 because of the civil servants strike.

The GDP increase in the first quarter is expected to be boosted on the supply side by services, which, according to the median, rose 1% compared to the fourth quarter of 2021 (3.3% compared to the first quarter of last year). “Transportation is likely to lead, which has to do with the return of circulation and a boost from e-commerce to the postal services. And there is a big highlight for “other services’, which include those provided to families and which went through a certain euphoria after the omicron wave,” says Tiago Negreira, partner and economist at Macro Capital.

Even trade — which is part of services in the National Accounts — will probably offer a positive contribution for the quarter compared to the end of 2021, he says. “The drop in unemployment seems to be contributing, with recovery in the total wage bill, in addition to the government’s own aid programs, authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts, but that is something for the second quarter.”

The recovery in services (although somewhat delayed by the omicron) was already on the radar, so that, for Pedro Ramos, chief economist at Sicredi, there were surprises in other segments as well. “Industry had shown weakness in previous quarters and there was a moment when it was thought that agribusiness might weaken, because of crop failures, but we should still see growths on the margin and we may have record harvests in the year,” he says.

Valor’s survey indicates a rise of 0.4% in industry and 1% in agriculture in the first quarter, compared to the three immediately preceding months. In relation to the first quarter of 2021, however, they are expected to fall by 1% and 3%, in that order.

On the demand side, in line with the expansion in services and a more resilient trade, the positive contribution to the GDP from January to March should come from household consumption. The median expectation is for 1% growth in the margin and 2.5% in relation to the same period in 2021.

The Gross Fixed Capital Formation (GFCF), on the other hand, is expected to remain stagnant in the first quarter, which, according to economists, is not necessarily a bad thing: “It rose 17% in 2021, it was at a very high level. If you think that this investment was raised based on interest at 2% and a lot of transfer to the economy, we could imagine that, when the Selic reached the level that we project, this will go down,” says Mr. Ramos.

The GDP of the first quarter will be very important for the growth of the year, according to Luana Miranda, economist at GAP Asset. Based on data from the fourth quarter of 2021, the carryover for 2022 was 0.3 percentage points. With the consolidation of the first quarter, for which GAP expects a high of 1.3%, the carryover would rise to 1.9 points, according to Ms. Miranda.

“We do not have a high projection of 1.9% of GDP this year because we expect a fall in the second half due to the lagged impacts of monetary policy,” she says, predicting a 1.5% growth in Brazilian activity in 2022.

Ms. Miranda recalls that, after the better-than-expected result in the first quarter of last year, there was a wave of optimism that pushed up the GDP estimates for 2021. One has to be careful with that, she says. “I believe the first half of the year is given and will be good. The question is what the impact will be in the second half.”

Preceding data shows household services still in the spotlight in April, Ms. Miranda says. For the second quarter GDP, the median expectation of economists is a deceleration, but there would be a rise of 0.4%, compared to the first quarter.

“The carryover from the first quarter to the second quarter is positive, but the growth factors are already starting to become more limited,” says Mr. Negreira, with Macro Capital. The manager, who projects 1.9% for the GDP in 2022, expects, as do most economists, contractions in the third and fourth quarter of the year.

Besides monetary tightening, the exhaustion of the process of reopening services and the uncertainties surrounding the electoral process will probably weigh. One question is also whether the labor market will remain resilient given the worsening financial conditions, Ms. Miranda notes. At some point, she says, this will hit the companies.

Tendências Consultoria, which has a more modest GDP estimate for 2022, of 0.6%, highlights the role of inflation, systematically revised upwards, in the perspective of weaker quarters ahead. The international scenario is not very helpful either, points out economist Thiago Xavier. Despite bringing commodities up, it has been, he says, the stage for downward revisions of growth, inflation upwards, with monetary tightening. “The world, from the point of view of growth, has been a frustrating and limiting factor for the Brazilian GDP.”

Source: Valor International

https://valorinternational.globo.com

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Analysis: Economists skeptical about tightening cycle ending this week

Less than 25% of the economic analysts consulted for the Focus survey of market expectations believe that the Central Bank’s Monetary Policy Committee (Copom) will end the monetary tightening cycle this week.

This is what the map of the distribution of market expectations, released by the monetary authority, shows. Less than 25% of economic analysts believe that the Selic, Brazil’s benchmark interest rate, will end the year between 12% and 13% per year.

The Copom will release its monetary policy decision on Wednesday and it is expected to raise the Selic to 12.75% per year from 11.75%, as widely signaled by the policymakers.

The question mark is whether the Copom will continue to raise interest rates in the coming meetings. In March, Central Bank President Roberto Campos Neto said that it would most likely stop at 12.75% per year. But negative surprises in the inflation indexes released since then have made analysts reinforce bets on a deeper tightening.

The map of the distributions of expectations shows that more than 70% of analysts see the Selic between 13% and 14% per year. The median expectation stands at 13.25% per year.

Besides the higher interest rate peak, analysts see a longer monetary tightening cycle. The median interest rate forecast for the end of 2023 rose to 9.25% per year from 9% last week.

The map of the distribution of expectations shows that about 50% of analysts expect an interest rate at the end of 2023 higher than 7.75% per year, with bets up to 9.25% per year. There is a large group, of about 45% of the analysts, who believe that the Selic will exceed 9.25% per year by the end of 2023, with bets as high as 10.75% per year. Around 5% of analysts think that the interest rate will exceed 10.75% per year.

The revision of bets on the size and duration of the monetary tightening cycle is linked to the faster current inflation and higher market expectations for the price index.

Last week, the median of the analysts’ projections for Brazil’s official inflation index IPCA in 2023 rose to 4.1% from 4%. Thus, it is getting further and further away from the target for the year, of 3.25%, which is today the central target of monetary policy decisions.

Only something like 5% of analysts project inflation around the 2023 target, ranging between 2.88% and 3.48%. In March, the Central Bank projected that inflation would reach the 3.25% target, but these calculations are increasingly questioned by private-sector analysts.

Some 45% of analysts project inflation between 3.48% and 4.08%. In addition, 45% of analysts forecast inflation between 4.08% and 4.68%.

Source: Valor International

https://valorinternational.globo.com

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War likely to have little impact on Brazilian economy, experts say

Economists and banks, however, warn that it depends on the duration of the conflict

Brazilian economy: encouraging news from the IMF - Europartner

The Brazilian economy is little exposed to the Russia-Ukraine war and is likely to suffer little impact, at least for now. This scenario, however, will only be confirmed if the conflict does not spread to other European countries, economists and banks told Valor.

For the head of economic research in Latin America at Goldman Sachs, Alberto Ramos, the fastest impact will be seen in inflation via commodities, and not in growth. “The first quarter will still be very much influenced by the omicron dynamics, which affected activity in January and there was a small rebound in February,” he said.

“Potentially, the implication [of the Russia-Ukraine conflict] will be to backfire a bit on the inflationary process and make the Central Bank more conservative because of the impact on commodity prices,” he added.

“Brazil’s trade levels with Russia and Ukraine are quite limited. The supply of fertilizer for the agribusiness can be impacted by this channel and put more pressure on food prices and energy prices with oil above $100. It means more pressure on Petrobras. But the impact, I say it again, is more immediate on inflation than on growth. We are already in March, there is not much more to go for the first quarter,” says Mr. Ramos.

A report by Dutch bank Rabobank goes in the same vein. The economists at the financial firm note that with the exception of the fertilizer market, Brazil is little exposed to Russian supply or demand and believe that the military attack should only indirectly weigh on Brazilian activity.

The report entitled “A Russian cloud over Brazil,” says that everything depends on the duration of the conflict. The side effects of the war, says the bank, may come from energy prices and uncontrolled imported inflation, and the likelihood of higher interest rates.

With high inflation, Rabobank projects a Selic rate of up to 12.25% in the second quarter of this year, with a slowdown to 11.75% by the end of the year. But it warns that a prolonged conflict may delay the easing cycle.

In the evaluation of the chief economist of RPS Capital, Gabriel Leal de Barros, the prospect of increased public spending in Brazil, because of the elections, may end up offsetting the negative effect coming from the war in Russia. He recalls that states and municipalities have about R$180 billion in cash today, equivalent to 2% of GDP. “Some states are already spending more, giving salary raises for civil servants, and this move acts as a counterweight to the negative effect of the war on activity,” he said.

Source: Valor International

https://valorinternational.globo.com

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Economists review contribution of agriculture to GDP

Minus 23.9 per cent: In falling GDP, Agriculture output is only positive | Business News – India TV

The contribution of agriculture – considered by economists as a pillar of the economic activity this year – to Brazilian GDP is now seen as a question mark due to the excessive rainfall in some regions and drought in others. The prevailing view is that the sector will have a positive 2022, but not as good as previously expected, which is driving downward revisions.

This week’s change in BNP Paribas’s forecast for Brazil’s GDP this year, which went to -0.5% from +0.5%, includes a revision in the agro GDP to 1.5% from around 5%, said Gustavo Arruda, head of research for Latin America at the bank. “We were quite surprised, it changed very fast.” He estimates that agriculture directly took 0.2 percentage point from its GDP projection. Considering indirect effects — on the industry, for example, as tractors play an important role in car production, Mr. Arruda says — the negative impact could be closer to 0.3 pp.

Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV) still maintains a positive total GDP for 2022, but has adjusted the estimate to 0.6% from 0.7% because, among other things, the revision of agricultural growth to 3.5% from 5%.

Barclays, which revised its projection for the Brazilian GDP in 2021 to 4.3% from 4.5%, kept its forecast at 0.3% for 2022, but says it is monitoring potential negative risks. Among them, in addition to the omicron variant, Roberto Secemski, the bank’s chief economist for Brazil, cites “extreme heat and drought conditions in southern Brazil threatening soybean and corn production, which normally lead agricultural gains in the first quarter of each year.”

Under the natural phenomenon La Niña like now, the typical impacts are exactly drought in southern Brazil and rainfall in the Northeast region, said César Castro, an agro specialist at Itaú BBA. “In 2021, the effects of La Niña were milder.”

In Brazil, Mr. Castro said, the bulk of the grain crop comes first from soybeans in the Cerrado region and then from the second yearly crop of corn, which is sowed now and harvested just before the middle of the year. In the South region, where the drought is very severe, however, the picture of “more soy, less corn” is a little different. There, the first corn crop alone may already total between 25 million and 30 million tonnes, while corn’s second crop could reach 80 million. “Those 30 million are suffering a lot,” the analyst says.

As a result, he said, the projections for Brazil’s first corn crop face downward revisions of up to 5 million tonnes, while the soybean crop is now expected to shrink by around 10 million tonnes. “Everything regarding soybeans is happening now,” Mr. Castro said, noting that Paraná and Mato Grosso do Sul, the most relevant states for planting, are also suffering with the drought.

Even though the first corn crop is less representative in Brazil, it has the important role of “creating a cushion” until the middle of the year for the demand of livestock, Mr. Castro said. “A big part of the corn issue in Brazil is solved in the second half of the year. Last year, there was a huge harvest loss, which meant that the cushion is very short. So, we are going to have a regional problem.”

Based on worsened estimates, Itaú Unibanco, which used to calculate an agriculture GDP growth in 2022 close to 5%, now foresees between 1% and 2.5%. “There is still uncertainty about how the IBGE revision will be,” said Luka Barbosa, an economist with the bank, mentioning Brazil’s statistics agency. In any case, the changes in projections for the agribusiness makes Itaú more comfortable with its estimate for the economy in general. “Before, we saw this strong agro GDP in 2022 as an upside risk to our projection of -0.5% for Brazil’s GDP. Now, we are much less worried,” he said.

Corn and soybeans crops under pressure led Itaú to revise its preliminary projection for this first quarter’s GDP to 0.4% from 0.7% — the number fell a bit more, to 0.3%, after considering additional data from other sectors. “It is still a positive first quarter, because of agribusiness, but less than before,” Mr. Barbosa said.

In its last report, on January 11, the National Supply Company (Conab) cut almost 7 million tonnes from its forecast for the grain harvest, to 284.39 million tonnes, which would still be a record number. These data, however, refer to the week to December 18, and further downward revisions are expected to occur, said Cristiano Oliveira, chief economist at Banco Fibra.

His projection for agriculture in the GDP, which was once of 4% growth, is now at 2.5%. This value is enough to put the Brazilian GDP very close to zero, but, taking into account the most recent information on some crops, Mr. Oliveira says he sees a slightly negative bias for the Brazilian economy in 2022.

Despite the importance of agribusiness for the Brazilian economy, it represents something close to 5% of the GDP, Mr. Oliveira said. “There is a chain, where the participation of agribusiness is greater. But, for the purposes of IBGE’s calculation of the GDP, this would be included in industry and services,” he said. Therefore, he says that one cannot “blame” agribusiness in case the GDP becomes negative this year.

Rabobank has been working for some time with a more conservative forecast for agriculture GDP in 2022, up 3.5%, coming from an expected drop of 0.5% in 2021, said Mauricio Une, the bank’s chief economist. “We are comfortable [with the projection]. With that, we have a total GDP this year around 0.6%,” he said.

In the soybean crop, for example, the projection is of a certain stability: 140 million tonnes, compared to 137 million tonnes last year, according to Mr. Une. “We still have a good year despite the drought. There is some support, which we have to monitor”, he said. Mr. Castro, with Itaú BBA, projects a soybean crop around 135 million tonnes. “We expected a slightly higher production than in 2021, but it’s still a reasonable number.”

Other crops, such as sugarcane and coffee, and cattle raising are likely to perform well, said Mr. Oliveira, with Fibra. Mr. Une notes that coffee is on a positive biennial basis in 2022 — the strongest harvest takes place every two years. “Last year, we saw frosts affecting coffee seedlings. For this year, we expect a recovery to 63.5 million this year from 57 million bags in 2021.”

The difficulties faced by corn tend to dissipate throughout the year, Mr. Castro said. If it is planted in the right window for soybeans, until the end of February, it creates a great chance of not suffering from drought or frost, the analyst said. “Since soybeans are being harvested and the weather outlook is relatively good from now on, we think there are conditions for the second yearly crop returning to normality,” Mr. Castro said. He projects 116 million tonnes of corn for 2022, compared to 87 million in 2021.

Mr. Oliveira, with Fibra, said that the second yearly crop of corn may benefit from stronger market prices. Prices for corn on Brazilian stock exchange B3 have remained at a relatively high level, as well as international values, said Mr. Une. “As much as there is this drop in volume expectations, we have a holding price,” says the Rabobank economist.

In the view of Mr. Arruda, with BNP Paribas, the behavior of the second yearly crop of corn, both in terms of damage by the drought and the increase in the cost of inputs, will be key to understand the dynamics of the year. “Agricultural margins will still be historically consistent, but well below 2021, because costs have risen too much, especially those of fertilizers and chemicals,” Mr. Castro said. Lower profits in agriculture reduce some of the “irrigation” that the sector manages to pass on to the GDP in the form of investments and hiring, Itaú’s analysts say.

Source: Valor international

https://valorinternational.globo.com/

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