Greater GDP Growth in 2022 and Contradictory Impulses

BRAZIL ECONOMICS - Report 11 Jul 2022 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

All indications are that GDP will expand more than previously expected in 2022, by around 2% instead of our previous projection of 1.6%. The steep decline of unemployment, the better performance of real retail sales and exports, the evidence of recovery of civil construction and the growth of all our confidence indicators point to stronger GDP growth than we previously estimated.

However, these results will be affected by two forces acting in opposite directions. On the one hand, the fiscal impulse has increased significantly, seeking to burnish the president’s popularity by expanding household consumption in the last half of the year. On the other hand, the effects of the tighter monetary policy implemented by the Central Bank since the end of 2021 will continue restraining the financial conditions, together with the movements of the international economy, which only recently has started to increase the tightness of the financial conditions.

With the great majority of countries adopting restrictive monetary policies, 2023 should see substantial deceleration of global growth, accentuating the trend for deceleration of the Brazilian economy, which should be intense, with high probability of recession next year.

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