Goldman Sachs reduces expectations for GDP in 2022 to a high of 0.8%

O Goldman Sachs lowered its projection for the growth of Gross Domestic Product (GDP) in Brazil in 2022 to 0.8%, warning of heated inflation, tighter monetary conditions and growing domestic political-fiscal risks.

Previously, the US bank projected an advance of 1.5% of GDP next year. For 2021, Goldman Sachs maintained its growth estimate of 4.9%.

In a report on the economic prospects for the Latin America, the bank cited “very high inflation against a backdrop” and consequent “shift to a significantly restrictive monetary policy position by the end of 2021” as justifications for its projection.

Goldman Sachs expects that the central bank raise the Selic rate to 11% per annum at the end of its current monetary tightening cycle. Currently, the basic interest is at 7.75%, after the autarchy promoted an increase of 150 basis points in the last meeting of the Copon.

In addition to the prospect of higher borrowing costs, the report also warned of worsening confidence indicators, deteriorating governance conditions and rising political and fiscal risk premiums as impediments to economic growth.

“The inability of authorities to plan and articulate a comprehensive fiscal adjustment program could be deleterious in this context, potentially triggering a negative spiral of rising funding costs and deteriorating sovereign credibility,” said Goldman Sachs.

Your comments come amid pressure from the administration of Jair Bolsonaro for more spending on social benefits in the 2022 election year. PEC of Precatório –which changes spending ceiling rules, considered the only fiscal anchor in the country– as its “plan A” to make the payments of aid to the population viable.

And the high odds that next year’s presidential election will be “too polarized” add to the risks facing economic activity, said Goldman Sachs.

“In Brazil, political and institutional noise and friction have been a constant since 2018, compromising the progress of fiscal reforms and keeping political uncertainty high.”