BC improves GDP growth projection to 1.9% in 2024 and sees “surprise” inflation

(Reuters) – The Central Bank improved its economic growth projection in 2024 to 1.9%, compared to the 1.7% estimated in December, according to the Quarterly Inflation Report released this Thursday, which also presented warnings about the evolution of inflation.

“The moderate revision mainly reflects the slightly greater than expected dynamism of the economy at the beginning of the year, as suggested by available indicators,” said the monetary authority.

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The BC’s forecast is close to that of the market, which estimates economic growth of 1.85% in 2024, according to the most recent Focus survey. The Ministry of Finance, in turn, forecasts an expansion of 2.2% this year, but the head of the ministry, Minister Fernando Haddad, has already stated that the estimate should be revised to at least 2.5%.

In the document, the BC stated that it expects this year’s growth to have a lower contribution from less cyclical sectors, especially agriculture and the extractive industry, also seeing lower growth in family consumption, with less impetus from government transfers.

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For the authority, the external sector should have a negative net contribution to GDP, with an increase in imports and lower growth in exports. On the other hand, investments should grow again, with the support of less restrictive monetary conditions.

INFLATION – In the report, the BC said that headline inflation and average core inflation increased to levels that exceed the inflation target.

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“This upward surprise was due to the administered prices and food at home segments”, he stated, highlighting that there was an upward surprise in the underlying component (which excludes volatile items) of the services segment.

According to the monetary authority, the probability of inflation exceeding the limits of the target tolerance range this year was maintained at 19%.

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“As the projections are higher than the target, the probabilities of exceeding the upper limit are greater than those of exceeding the lower limit,” he stated.

The inflation target for this year is 3%, with a tolerance margin of 1.5 points more or less.

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In relation to monetary policy, the BC reiterated the message in the minutes of the Monetary Policy Committee (Copom) that its board foresees a new cut of 0.50 percentage points in the basic interest rate at the next meeting, in May.