Bank of America raises forecast for Brazil’s GDP growth in 2022 to 1.5%

Bank of America raised its forecast for the expansion of Brazil’s Gross Domestic Product (GDP) this year by 1 full percentage point, to 1.5%, with the assessment that the economy should receive a boost from more favorable terms of trade and of fiscal stimulus.

For 2023, the bank’s forecast for GDP growth was cut in half, to 0.9%.

“The recent developments on the external front are benefiting non-European emerging markets, such as Brazil,” BofA said in a report dated Monday (16).

“Specifically, rising commodity prices are a positive shock to the terms of trade, boosting the country’s trade balance, boosting production and unlocking incremental investments in the primary sector.”

The prices of agricultural, metallic and energy products soared in the international market from the end of February, when Russia invaded Ukraine.

The war, which will complete three months next week, continues to drag on, compromising the supply of several commodities, which tends to keep their costs high.

In addition to citing exogenous factors, BofA stated that “greater fiscal stimulus announced by the government will increase aggregate demand, helping to mitigate the deterioration of household finances”, with this impact expected to be felt mainly in the second quarter of this year.

In March, the federal government announced an economic stimulus package that includes the release of funds from FGTS accounts, anticipation of the 13th salary of INSS retirees and pensioners, creation of a digital microcredit program and expansion of the payroll loan margin.

The Auxílio Brasil program also had its average payment readjusted, increasing income transfers to the poorest.

In addition, the government extended the cut of the Tax on Industrialized Products (IPI) at the end of last month, after having already reduced PIS/Cofins rates on diesel oil and cooking gas amid high inflation.

BofA also attributed the upward revision of its 2022 activity estimate to positive surprises in several recent economic indicators, such as retail sales data and service volume.

Even so, there was a worsening in its forecast for next year’s growth, at 0.9%, against a rate of 1.8% previously forecast.

This is because the cumulative effect of higher interest rates should only have a stronger impact on economic activity from the third quarter of this year, which should have a negative effect for 2023.

“Private consumption will continue to suffer the lagged effects of the monetary tightening in the first half of 2023, but should start to recover in the second half of the year,” said BofA, which expects the Selic rate to reach 13.25 in the month. that comes and retreats to 10.5% throughout 2023.