The American Economy and the Brazilian Scenario for 2023
To formulate scenarios for 2023, a fundamental piece of the current puzzle is the evolution of the economy in the United States. Initially, it is necessary to distinguish the effects of high-frequency movements of the S&P500 on the IBOVESPA (a large part of the recent recovery of the IBOVESPA has been “caused” by the renewed optimism in the USA), the consequences of restrictive American monetary policy, and how these factors are affecting the economy of Brazil and other emerging countries.
Despite experiencing two straight quarters of GDP fall, and the surprising result of the most recent CPI, the American economy is overheated, as revealed by all the core inflation rates and the labor market data, in which the pattern of two job openings for every unemployed worker continues to prevail, causing rising wages. Although the voting members of the Fed have repeatedly stated that the task of controlling inflation will continue, and their determination to establish a more restrictive monetary policy clearly appears in the dot plots, this does not seem to be the interpretation of investors reflected in the interest rate swaps, which have been declining steeply.
Our vision coincides with that of the Fed’s governors, who expect the fed funds rate to be increased to 4% (or even higher), which will reduce inflation at the cost of a sharp slowdown and possible recession sometime in 2023. In this scenario, the dollar will tend to remain strong (or even appreciate more), accompanied by depreciation of the currencies of all other countries. The greatest concern in this case is over the economically weakest emerging countries, such as those in Latin America and Eastern Europe, which because of rising inflation and weakening currencies will have to implement even more restrictive monetary policies. All these forces appear implicitly in the IMF’s projections in its latest World Economic Outlook.
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