The 1.5% drop in the fourth quarter presented by the IBC-Br, economic activity index that works as a thermometer of GDP (Gross Domestic Product), confirms the ongoing slowdown caused mainly by the sharp increase in interest rates in the last year .
The result also confirms the expectations of a much weaker growth for the country in 2023, according to economists consulted by the CNN . The IBC-Br is calculated by the Central Bank and was released this Thursday (16).
The closed GDP for 2022 will be released on March 2 by the Brazilian Institute of Geography and Statistics (IBGE).
“Factors that boosted our economy in 2022, such as the reopening of circulation, which boosted services, and the increase in commodity prices, which increased our terms of trade, will have their effects dissipated in 2023”, said Rafael Bacciotti, analyst of the Independent Fiscal Institute (IFI) of the Federal Senate.
“In addition, internally, we have a monetary policy that is still very tight and financial conditions are getting worse, which reinforces the prospect that GDP will decline.”
The IBC-Br indicated an increase of 2.9% in the Brazilian economy in 2022, essentially guaranteed by growth in the first half.
The IFI projection, in line with general market expectations, is that GDP will have grown by 3% in 2022 and slow down to 0.9% in 2023.
Increase in voided expense
Inter’s chief economist, Rafaela Vitória, highlights the fact that the slowdown happened even in the face of the strong expansion of expenses made by the Jair Bolsonaro government on the eve of the election, last year, with packages such as the PEC of Benefits, which, approved in July, it increased Auxílio Brasil, the gas voucher and created a benefit for self-employed drivers.
“The slowdown in the second half shows that the increase in spending promoted by the government as of July did not generate a fiscal impulse that would result in growth in activity. The effect of the more restrictive monetary policy ends up nullifying the fiscal impulse”, wrote Inter in a report to clients.
“With interest rates at a restrictive level and the economy with low idle capacity, a new fiscal expansion could end up generating more inflation, and not the desired growth in activity”, adds the analysis.
Inter revised upwards its inflation expectation for 2023, from 5.4% to 5.5%, while expecting a GDP of 0.8% for the year.
long term problem
Calculations made by XP point out that, without the increase in the Auxílio Brasil and other benefits last year and also in 2023, the economic slowdown could be even greater: with their help, the income mass, which is the sum of everything everyone earns should grow 2.5% this year and household consumption, one of the GDP components, 1.2%, according to the brokerage firm.
“Were it not for these increases [dos benefícios]the impact of interest and indebtedness would take consumption into negative territory”, says XP economist Rodolfo Margato.
The problem, however, is that such a large growth in government spending without tangible control counterparts worsens expectations for future inflation, and may create problems further down the line, making it difficult to reduce interest rates.
“In the short term, these measures [de ampliação fiscal] tend to have an effect, to sustain consumption, but there is a whole structural issue behind this significant expansion in expenses”, says Margato.
“Demand is only part of the story. Inflation expectations also impact the dynamics of inflation today, and, according to our models, they are, and not economic activity, the main element making it difficult for the Central Bank to cut interest rates.”
It is for this reason, explains Margato, that the weight of fiscal policy and signs still awaited from the government in relation, for example, to what will be the new fiscal framework, gained especially greater weight in relation to what to expect from interest rates and, with it , of the performance of the economy in 2023.
Source: CNN Brasil
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