Central Bank raises forecast for economic growth from 3.6% to 4.6%

Brazil’s Central Bank increased the projection on the growth of the economy in 2021. The forecast for the expansion of the gross domestic product (GDP), went from 3.6 to 4.6 percent.

The data can be found in the Inflation Report, a quarterly publication put together by the Central Bank, released today (Jun. 24). According to the authority, despite the intensity of the second wave of the COVID-19 pandemic, recent indicators on the country’s internal economic activity continue to show better-than-expected progress.

In the first quarter of the year, the Brazilian GDP increased 1.2 percent compared to the previous quarter, as per the Central Bank, thus returning to the threshold observed in the last quarter of 2019, before the pandemic, with positive results in the three sectors of the economy: services, agriculture, and industry.

Goods and services

The monetary authority expects that government programs supporting companies preserve its offer of goods and services in the medium-run, and that the new round of the emergency allowance and an early Christmas bonus for retirees and pensioners help preserve consumption among families, especially in the second quarter and the beginning of the next.

On the other hand, the Central Bank reported, despite the sharp decline in risks facing the economic recovery, there is still major uncertainties surrounding its growth pace. Among the drivers that could lower the expansion rate are the risk of the development and dissemination of new COVID-19 variants, with new temporary social distancing measures, the difficulties acquiring supplies, and the elevated costs in some productive chains, in addition to possible issues aggravating the water crisis, the worst witnessed by the country in 90 years.

“The water crisis in Paraná’s drainage basin may have negative implications for the generation of electric energy, not to mention the hike in prices stemming from the increased use of thermal power stations,” the text reads.

Higher inflation

Inflation, in turn, as gauged by the National Broad Consumer Price Index (IPCA), is likely to close out 2021 at 4.82 percent in a scenario with the country’s benchmark interest rate (Selic) at 6.25 percent a year in 2021, and 6.5 percent a year in 2022, with an exchange rate starting from R$ 5.05. In the previous report, in March, the forecast had stood at five percent. The Central Bank also estimates that inflation should be 3.8 percent in 2022 and 3.25 percent in 2023.

The prediction is above the target set for the inflation this year (3.75%), with a tolerance interval of 1.5 percentage points, plus or minus.