Credit Suisse starts to project an economic contraction of 0.5% in Brazil in 2022

Credit Suisse has worsened its estimates for Brazil’s Gross Domestic Product (GDP) this year and next, now projecting an economic contraction of 0.5% in 2022, with inflation likely to remain at high levels.

The private bank’s previous projection was for growth of 0.6% in GDP next year. For 2021, Credit Suisse has lowered the estimate to an economic expansion of 4.8%, against a rate of 5.0% previously forecast.

The Swiss lender’s review came after data this Friday (12) showed that the Brazilian services sector registered an unexpected drop of 0.6% in volume in September, after five months of growth.

“Today’s result reinforces the scenario of worsening economic activity that has been seen in recent months,” wrote in a report Solange Srour, chief economist at the bank in Brazil, and Lucas Vilela, economist.

Credit Suisse cited the global shortage of inputs as a short-term hurdle that explains the weak dynamics of economic activity, but the spotlight was on a broad list of “more persistent” factors likely to hamper GDP growth.

“The current level of inflation is expected to remain high due to the high inertia in the country; the recent tightening of financial conditions is unlikely to recede as interest rates are likely to rise further and the fiscal structure has weakened recently; uncertainty regarding the political scenario should remain high until the conclusion of next year’s elections, and the scenario for emerging markets has become more challenging (…)”, said Srour and Vilela.

And the economic contraction should not be accompanied by relief on the inflationary front, warned Credit Suisse. “Our models continue to forecast very high inflation next year, at 6.0%, well above the Central Bank’s target threshold of 5%.”