Market raises economic expansion projection to 2.09% in 2024

Market raises economic expansion projection to 2.09% in 2024
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The financial market’s forecast for the growth of the Brazilian economy this year rose from 2.05% to 2.09%. The estimate is in the bulletin Focus this Monday (13), a survey released weekly by the Central Bank (BC) with projections for the main economic indicators.ebc.gif?id=1594721&o=node

For 2025, the expectation for the Gross Domestic Product (GDP – the sum of goods and services produced in the country) is growth of 2%. For 2026 and 2027, the financial market also projects GDP expansion of 2% for both years.

Exceeding projections, in 2023 the Brazilian economy grew 2.9%, with a total value of R$10.9 trillion, according to the Brazilian Institute of Geography and Statistics (IBGE). In 2022, the growth rate had been 3%.

The dollar exchange rate forecast is R$5 for the end of this year. At the end of 2025, the forecast is that the American currency will be at R$5.05.

Inflation

In this edition of Focus, the forecast for the Broad National Consumer Price Index (IPCA) – considered the country’s official inflation – in 2024 rose from 3.72% to 3.76%. For 2025, the inflation projection was 3.66%. For 2026 and 2027, forecasts are 3.5% for both years.

The estimate for 2024 is within the range of the inflation target that should be pursued by the BC. Defined by the National Monetary Council (CMN), the target is 3% for this year, with a tolerance range of 1.5 percentage points up or down. In other words, the lower limit is 1.5% and the upper limit is 4.5%. For 2025 and 2026, inflation targets are set at 3%, with the same tolerance.

In April, pressured by food prices and spending on health and personal care, the country’s inflation was 0.38%, above that observed in the previous month (0.16%), but below that recorded in April last year (0 .61%). According to IBGE, in 12 months, the IPCA accumulated 3.69%.

Interest rate

To achieve the inflation target, the Central Bank uses as its main instrument the basic interest rate, the Selic, set at 10.5% per year by the Monetary Policy Committee (Copom). The recent rise in the dollar and the increase in uncertainty caused the BC to reduce the rate of interest cuts, which had been 0.5 percentage points, to 0.25 points.

From March 2021 to August 2022, the Copom raised the Selic rate 12 consecutive times, in a cycle of monetary tightening that began amid rising food, energy and fuel prices. For one year, from August 2022 to August 2023, the rate was maintained at 13.75% per year, seven times in a row. With price control, the BC started to make cuts in the Selic.

Before the start of the rising cycle, the Selic had been reduced to 2% per year, at the lowest level in the historical series that began in 1986. Due to the economic contraction generated by the covid-19 pandemic, the Central Bank had lowered the rate to stimulate production and consumption. The rate was at the lowest level in history from August 2020 to March 2021.

For the financial market, Selic should end 2024 at 9.75% per year. By the end of 2025, the estimate is that the basic rate will fall to 9% per year, remain at that level in 2026 and fall to 8.63% in 2027.

When Copom increases the basic interest rate, the purpose is to contain heated demand, and this has an impact on prices, because higher interest rates make credit more expensive and encourage savings. But, in addition to the Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses. Therefore, higher rates can also make it difficult for the economy to expand.

When the Copom reduces the Selic, the tendency is for credit to become cheaper, encouraging production and consumption, reducing control over inflation and stimulating economic activity.

The article is in Portuguese

Tags: Market raises economic expansion projection

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