The Brazilian Economy in a Turbulent World
Before the war caused by the Russian invasion of Ukraine, the IMF had projected a significant slowdown of the global economy this year. With the war and the corresponding shocks to fuel and food prices, the deceleration should be greater.
Before the war’s outbreak, Brazil’s monetary policy already was in restrictive territory, a pattern that will accentuate due to the supply shocks coming from the higher prices of fuels and commodities, especially foods. Inflation will decline in 2022, but despite the monetary tightening will still be around 6.4%.
The shock from commodities on inflation will occur despite the appreciation of the exchange rate, partly caused by the wider gap between the interest rate in Brazil and the USA and partly by the gains in the terms of trade. However, the strengthening of the Real will have limits. Although like what happened in 2021, there will be an improvement in the fiscal results, no progress can be expected in the fiscal fundamentals. In addition, the actions of the Federal Reserve will accentuate the movement for a stronger dollar that began in the middle of 2021.
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