New forecasts from the International Monetary Fund (IMF) show that by 2022, Brazil will have economic growth greater than four of the world’s largest economies: the United States, Germany, France and Japan. The IMF increased Brazil’s Gross Domestic Product (GDP) growth to 2.8% this year, from 1.7%, as indicated in the previous estimate, in July. The estimate for advanced economies is 2.5% for France; 1.7% for Japan; 1.6% for the United States; and 1.5% for Germany, in all cases, taking into account the latest estimate from the IMF.
The IMF’s new forecast for the performance of the Brazilian economy this year is also above estimates for South American neighbors such as Chile (2.0%), Paraguay (0.2%) and Peru (2.7%) .
In January, the IMF cut Brazil’s economic growth forecast for this year from 1.5% to 0.3%. In April, the institution revised its forecast to 0.8%. In August, expectations for Brazilian GDP expansion were 1.7%.
By the same margin, the agency cut the estimate for average growth of advanced economies in 2022 – projected at 3.9% in January. In the next estimate, published in April, the estimate fell to 3.3%. In July, a new review lowered the expectation of this expansion to 2.5%.
For the United States, for example, the projection for 2022 GDP growth was 4% in January. In the April release, the number dropped to 3.7% and reached 2.3% in July. In January, the institution forecast German GDP growth at 3.8% and that of the French economy at 3.5%. Similarly, in the month of July, the forecasts changed to 1.2% and 2.3% respectively.
On the agenda of the annual meetings of the International Monetary Fund (IMF) and the Board of Governors of the World Bank Group (WBG) in Washington (US), Paulo Guedes commented on the upward trend in growth estimates; and downward inflation caused by both internal and external agents. “The stock of private investment in Brazil, which has already dwindled for the coming years, is driving growth,” said the minister.
The economy minister believes that the fund still underestimates the potential of the Brazilian economy. “They may predict low growth because they think the other candidate will win and that is very bad for growth,” said the minister.
“With a strong structural change in the economy, which is the case with us, the old models lose their grip,” said the minister. “She [o FMI] forecast low growth based on public investment, which has been declining for 20 years. So the country is growing more and less, which was a truth, a fact. But we have changed the economic model and it is now based on private investment. We have already secured R$900 billion in private investment,” he said.
With the revision, the GDP increase forecast by the IMF for 2022 is also above market analysts’ perceptions, according to information captured in the Central Bank’s Focus bulletin. The most recent bulletin stated an expectation of a 2.7% increase for the Brazilian economy this year. The IMF’s 2023 GDP projection points to a growth of 1%, also above market agents’ expectations, of 0.54%, as indicated in the October 7 Focus bulletin.
Latest Growth Forecasts
United Kingdom: 3.6%
United States: 1.6%
Emerging and Developing Economies
Saudi Arabia: 7.6%
South Africa: 2.1%
Source: IMF, World Economic Outlook, October 2022
Brazil has shown “to be at the forefront”, says Guedes
Economy Minister Paulo Guedes presented a statement on Tuesday (11) at the 46th meeting of the International Monetary and Financial Committee of the International Monetary Fund (IMF) assessing that adverse financial conditions are affecting growth estimates in most of the regions, but believes that Brazil has shown “leading the way” in this scenario, as it has already taken timely and decisive measures to ensure fiscal sustainability and fight inflation.
According to the document, the current scenario of global economic slowdown – with higher interest rates, dollar appreciation and volatile capital flows – significantly increases the risks of financial difficulties in credit markets. This scenario reflects the supply bottlenecks caused by the Covid-19 pandemic that were exacerbated by the war in Eastern Europe, leading to high food and energy prices on a global scale.
With regard to the situation in Brazil, the document points to the measures taken by the country to ensure fiscal sustainability and fight inflation, leading to primary budget surpluses from August 2021; the return of public debt to pre-pandemic levels (77.5% of GDP in August 2019 and August 2022); and continuity of emergency aid.
The material is a reminder that the Central Bank of Brazil was one of the first to react decisively to inflationary pressures, beginning its cycle of monetary tightening in March 2021. It also highlights the country’s efforts to rebalance the domestic economy, both fiscally and financially.
Brazilian tax collection rose 17.5% last year, according to the statement, noting that the primary budget deficit in 2021, as a percentage of GDP, was lower than the years before the pandemic. As a result, GDP growth will exceed expectations that were not very optimistic, which pointed to an increase of 0.3% at the beginning of the year.
The document speaks of the importance of central banks adopting a stance of “unshakable determination” in the fight against inflation, which requires maintaining high interest rates for an extended period of time. According to the minister, after significant slowdowns, advanced economies have started to adopt more restrictive monetary policies due to high inflation and the economic slowdown the world economy is experiencing.
Brazil represents a group of countries in the IMF. The material presented summarizes the assessment of the main themes in the current economic situation in the world and reflects each country’s understanding of its own experiences. In addition to Brazil, the document lists the assessments of Cape Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Democratic Republic of East Timor and Trinidad and Tobago.
Savings no longer lose to inflation after two years
The fall in inflation in September surprised investors in the country’s most traditional financial investments. For the first time in two years, the savings account stopped losing inflation.
In September, the National Consumer Price Index (IPCA) was negative at 0.29%, as announced yesterday (11) by the Brazilian Institute of Geography and Statistics (IBGE). In 12 months official inflation accumulates 7.17%.
According to the Citizen’s Calculator, available on the Central Bank (BC) website, a savings account application yielded 7.27% in 12 months. The value takes into account a request made on October 11 last year that wasn’t changed until Tuesday (11).
The last time savings surpassed inflation was in August 2020, when the passbook had yielded 0.45% above the IPCA in 12 months. Since then, the combination of high inflation and low interest rates has eroded the income of the country’s most popular investment. The worst moment happened in October 2021, when the investor lost 7.59% against inflation over the 12-month period.
From March 2021 to August this year, the BC raised the Selic rate (base rate) from 2% to 13.75% per annum. The IPCA, which crossed double digits of its 12-month total until July this year, retreated after three consecutive deflations, mainly driven by the cuts in taxes on fuel, energy, telecommunications and public transport. These two factors have gradually offset the loss of savings from inflation.
At the moment, saving yields 6.17% per year plus the Reference Rate (TR). This rule applies when the Selic rate is above 8.5% per annum, which has been the case since December last year. When the base rate is below this level, savings yield 70% of the Selic.
Savings will continue to benefit from inflation in the coming months. In the latest issue of the Focus bulletin, a weekly survey of investors published by the Central Bank, market analysts predicted the IPCA would close at 5.71% in 2022. As the Focus bulletin also predicts that the Selic rate will end at 13.75% per annum in 2022, the booklet will continue to yield around 7.5% over the 12-month period.
The improvement in income should help contain the record loss of funds from savings recorded this year. From January to September, Brazilians withdrew R$91.07 billion more from financial investments than they had deposited. Last month alone, net withdrawals (difference between deposits and withdrawals) reached R$5.9 billion.
The profitability of savings is regulated by the government and banks cannot simply offer savings that yield more or less than another bank. When you open a savings account, you lend your money to an institution, which can use it and return it with interest in the future. Savings account income rules were changed in May 2012 to keep their profitability always below the Selic, the economy’s base interest rate.
The reason that savings income is regulated is precisely that it always remains lower than the Selic rate, since the government itself also has its own system of ‘borrowing money at interest’ with government bonds.