Market lowers estimated economic growth for Brazil in 2021

The expectation for the GDP went from 4.65 to 4.58 percent

Published in 20/12/2021 - 10:02 By Andreia Verdélio - Brasília
Updated in 20/12/2021 - 15:41

The financial market’s forecast for the growth in the Brazilian economy this year dropped from 4.65 to 4.58 percent. The estimate can be found in today's Focus readout (Dec. 20), a weekly survey by the country’s Central Bank (BC), which includes projections for the main economic indicators.

For next year, the expectation for the gross domestic product (GDP) is a 0.5 percent growth, the same as last week. In 2023 and 2024, the financial market projects growths of 1.85 and two percent, respectively.

The forecast for Brazil’s National Broad Consumer Price Index (IPCA), which gauges the country’s official inflation, also declined, from 10.05 to 10.04 percent this year. It is the second reduction after 35 consecutive weeks with an upward projection.

For 2022, the estimated inflation stands at 5.03%. For 2023 and 2024, forecasts are 3.4 and three percent, respectively.

In November, driven mainly by the increase in fuel prices, inflation was 0.95 percent, as reported by the government’s statistics agency IBGE. This brings the indicator to 9.26 percent year-to-date and 10.74 percent for the last 12 months—the latter being the highest since November 2003.

The forecast for 2021 is above the inflation target that should be pursued by the Central Bank. The target, set by the National Monetary Council (CMN), is 3.75 percent for this year, with a tolerance interval of 1.5 percentage points up or down. In other words, the lower limit is 2.25 percent and the upper limit 5.25 percent. For 2022 and 2023, targets are 3.5 and 3.25 percent, respectively, with the same tolerance range.


To reach the inflation target, the Central Bank uses Brazil’s benchmark interest rate, the Selic, as its main instrument, defined at 9.25 per year by the Monetary Policy Committee (Copom). For the body’s next meeting, in February, Copom has signaled it should raise it by another 1.5 percentage points.

BC’s projections for the inflation are slightly above the 2022 target and near the 2023 target. This reinforces the financial institution’s decision to maintain a more belt-tightening policy with higher interest rates, so that the inflation may come closer to the target, within the tolerance range defined by the CMN.

The financial market, in turn, expects the Selic to be raised to 10.75 percent at the first Copom meeting in 2022, in line with BC indications, and to close out the year at 11.5 percent. By the end of 2023, the benchmark interest rate is estimated to drop to eight percent per year. For 2024, the Selic should stand at seven percent a year.

When the Copom increases the basic interest rate, its purpose is to contain a heated demand, which impacts prices as higher interest rates make credit more expensive and stimulate savings. Higher rates may therefore hamper the economy’s recovery. In addition, banks consider other factors when setting interest charged to consumers, such as risk of default, profit, and administrative expenses.

When the Copom reduces the Selic, credit tends to become cheaper, with incentives for production and consumption, reducing inflation control and stimulating economic activity.

The market expectation for the dollar exchange rate is R$ 5.60 for the end of this year. By the end of 2022, the US currency is expected to stand at R$ 5.57.

Edition: Graça Adjuto

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