Government revises down GDP projections for 2016 and 2017

The government has lowered its projection for the Gross Domestic Product (GDP) growth in 2017 from 1.6% to 1%. The 3% decline forecast for 2016 was also widened to 3.5%. The new forecasts were announced Monday (Nov. 21) by the Secretary of Economic Policy of the Ministry of Finance, Fábio Kanczuk.

The government has also revised its estimates for inflation as officially measured by the Brazilian Institute of Geography and Statistics (IBGE) through the Broad National Consumer Price Index (IPCA). The IPCA is now expected to stand at 4.7% in the end of 2017, a slight decrease from the August forecast of 4.8%. The inflation projection for 2016 has been lowered from 7.2% to 6.8%.

Spread

In August, the government actually raised its GDP forecast for 2017 from 1.2% to 1.6%. But according to Fábio Kanczuk, the downward revision on Monday was based on the current business debt level and the increased perception of risk by the market. Moreover, he said, the bank spread (the difference between the interest rate a bank charges borrowers and the interest rate it pays to its depositors) is increasing, which is a sign that credit is getting more expensive and the banking sector is assigning higher risk to businesses.

Fiscal target

Kanczuk also stated that regardless of the GDP revision, the government is committed to the fiscal target of the Central Government (Treasury, Central Bank, and Social Security). The target set for 2016 is a $50.12 billion deficit. For 2017, the expected fiscal deficit is $41.28 billion.

The secretary admitted that the GDP deterioration could knock down government revenue, making the fiscal target for this and next year more difficult to meet. He did not give details as to the extent of the impact, but he said “other factors” could positively influence tax collection, and added that the projected revenue estimation takes into account such factors as foreign exchange for example.

Translated by Mayra Borges