GDP revisions occur after “very good” second quarter, says expert

The rises in market projections for the Gross Domestic Product (GDP ) of 2022, indicated this Monday (5) by the Focus Bulletin reflect the “very good” result of the economy in the second quarter, says senior economist at LCA Consultores Thais Zara.

In an interview with CNN the economist evaluated that “the positive news that we had last week has a lot to do with what we are seeing in the Focus Bulletin, and we will probably continue to see this upward movement in market projections for GDP in the next few weeks”.

According to her, the market has not had much time to revise its forecasts, with new numbers being presented over the next few weeks. The new edition of Focus started to project a GDP growth in 2022 of 2.26% compared to 2.10 a week ago.

Zara also highlights that “the first data for the third quarter, referring to July and August, are coming better than expected, so it supports the view that the quarter will be better, and will now count on the beginning of the payment of Auxílio Brasil higher, of R$ 600, and a certain release of family income due to ICMS reductions”.

For the economist, the reduction in inflation helps the economy by leaving more disposable income for the population, boosting GDP in the third quarter and may even help with the figures for the last three months of the year.

In the case of LCA, the review is still in progress, but Zara says the new projection should be around 2.7%. “If GDP stopped in the third and fourth quarters, how much would it grow in the year? Around 2.6%, so the Focus should go to at least something around that”, he observes.

As for 2023, she says that the economy should slow down, in a global movement. In this case, high interest rates will weigh in the effort to fight record levels of inflation.

In Brazil, the directors of the central bank reinforced the need to maintain the Selic rate at a stable level for an extended period, “trying to bring expectations to a higher Selic level to try to signal to the market its commitment to achieving the inflation target in 2023”, explains the economist.

She highlights that “the effect of higher interest rates is very clear on the economy, and it is through this effect that inflation returns. When interest rates rise, it makes consumption more difficult, saving more attractive, people decide to save instead of consuming, and when they have lower consumption, they end up with lower GDP, and with that, they manage to bring inflation down”.

“Next year, there will possibly not be a series of measures that the government took this year that ended up bringing an additional boost to growth”, he says. The trend, according to Zara, is “to move towards a deceleration at the turn of this year to the next, with GDP growing less, reflecting the effects of higher interest rates and the exhaustion of stimulus measures”.