Projections for 2023

BRAZIL ECONOMICS - Forecast 12 Dec 2022 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

Before presenting the projections for 2023 (there’s no way to estimate numbers for 2024 with any security), we express two caveats. First, the GDP gap is still significantly positive (with the unemployment rate below the NAIRU), and this might require keeping the SELIC rate at 13.75% throughout 2023 to bring inflation down to the target in 2024. And second, although this prognosis is limited by the scant information already announced by Lula, the outlook is for higher public spending and a corresponding increase of the debt/GDP ratio (and risk premiums), in a head-on collision with restrictive monetary policy. In short, the new government will start with many contradictions in the economic policy field.

We agree with the consensus projections that although it will be lower than now, inflation measured by the IPCA will remain above the upper bound of the target interval throughout 2023, even with the SELIC rate kept at 13.75% during the whole year, which is our projection. However, since for inflation to fall it will be necessary to have a negative GDP gap, which is still positive, the likelihood is high that in 2023 GDP will decline marginally instead of growing slightly. Our projection is of a GDP decline of 0,2%.

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