The Challenges and Projections for 2023
From both the international and domestic standpoints, the economic scenario for 2023 is challenging. Global growth is decelerating, more so in Europe than in the United States, a pattern that also holds sway in China and the great majority of other emerging countries. As a leading exporter of commodities, Brazil’s economy in 2023 will be hampered by the slower growth of the volume of international trade and the reduction of international commodity prices.
In 2023, Brazil will have a new government, which will inherit a severely damaged fiscal framework, but with political power to win approval of spending increases above the ceiling, which will continue existing, at least temporarily. With the current restrictive monetary policy starting to exert its full effect on inflation, economic growth will decline. Our projection is that after growing by 3% in 2022, led by expanded consumption that propagated to gross fixed capital formation, predominantly due to the fiscal impulse, growth in 2023 will be a mediocre 0.5%, roughly equal to the carry-over inherited from 2022.
With the SELIC rate maintained at 13.75% for an extended period, inflation will ease during 2023, reaching 5.3%, but will only attain the target in 2024. Depending on what is done in the fiscal field, the chance cannot be ruled out of reductions of the interest rate near the end of 2023. The main incognito in this respect is whether fiscal policy continues promoting expansion of aggregate demand, neutralizing the Central Bank’s efforts to control inflation. In the fiscal policy field, we believe the likelihood of a modicum of fiscal responsibility is very small.
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