BC revises GDP for 2022 from 2.7% to 2.9% and maintains 2023 at 1.0%
- December 16, 2022
- No Comment
The Central Bank (BC) raised its estimate for Gross Domestic Product (GDP) growth in 2022, from 2.7% to 2.9%, according to the Quarterly Inflation Report (RTI) released this Thursday, 15. On the supply side, the improvement was driven by the service sector, whose growth forecast jumped from 3.4% to 4.1%. This performance more than offset the change for agriculture from zero to a 2.0% drop, and the upward revision for industry from 2.4% to 1.9%. With regard to the components of demand, the RTI reported changes from 3.9% to 4.2% in the expectation of growth in household consumption and from 0.7% to 1.6% in the forecast for an increase in government consumption.
The document released this Thursday also indicates that the projection for 2022 of Gross Fixed Capital Formation (GFCF) – an indicator that measures the volume of productive investment in the economy – went from a drop of 0.4% to an increase of 0.7% . All previous estimates were contained in the RTI released in September.
Forecast for 2023
For 2023, the BC maintained its expectation of GDP growth at 1.0%. On the supply side, the Central Bank updated the estimate of expansion of agriculture from 7.5% to 7.0%, while, for industry, the projection ranged from 0.4% to zero. In the case of services, the monetary authority now estimates growth of 0.9% compared to 0.6% in September’s RTI. Among the components of demand, the Central Bank revised the expectation for household consumption from 0.7% to 1.2% and the forecast for government consumption from 1.0% to 1.1%. The expected GFCF went from a drop of 0.5% to an increase of 0.3%, according to the municipality.
In the Focus Bulletin, the median is 3.05% growth for this year’s GDP and 0.75% next year.
Projection for IPCA 2023 is 5.0% and 2024 is 3.0%
The BC repeated in the report the inflation estimates for the years 2022 to 2024 in the reference scenario, disclosed in the statement and in the minutes of the Monetary Policy Committee (Copom) this month. The projection for this year’s IPCA is 6.0%, while in 2023 it is 5.0% and, in 2024, 3.0%. The BC also informed the projection for 2025, of 2.8%.
The reference scenario uses interest rates according to the Focus Market Report and the exchange rate updated according to Purchasing Power Parity (PPP). In addition, it considers that the price of a barrel of oil should approximately follow the future curve in the next six months, rising 2% per year thereafter. For the energy tariff flag, the hypothesis considered is green at the end of this year and yellow at the end of 2023 and 2024.
Estimates for 2022 and 2023 are above the target tolerance margin of 5.0% and 4.75%, respectively. For 2024, the BC’s projection coincides with the central target of 3.00%, while 2025 falls short of the central target (3.0%). Currently, the Copom considers the years 2023 and 2024 in the relevant horizon, but has been emphasizing the second quarter of 2024.
In the Focus Bulletin, the medians were around 5.79% for 2022, 5.08% for 2023, 3.50% for 2024 and 3.02% for 2025.
The Central Bank also released its short-term inflation projections in the RTI, covering the months of December to February. At the end of this quarter, the BC points out that the cores must still remain above the level compatible with the ceiling of the target.
The BC’s forecast for the IPCA – the official inflation index – for December is an increase of 0.70%. The projection for January is an increase of 0.82% and, for February, an increase of 0.88%.
In the RTI, the BC highlighted that inflation in the quarter ended in November surprised upwards again, being 0.17 percentage points higher than what the Copom had projected in the September document. Among the factors that explain the upward surprise, the monetary authority highlighted that part of the expected reduction in residential electricity bills due to the ICMS limitation did not materialize. “That factor contributed more than two-thirds of the surprise.” In addition, according to the BC, there was a substantial increase in in natura foods, due to heavier rains and earlier than expected.
On the other hand, the agency pointed out that service inflation was “significantly” lower than expected, with emphasis on the more favorable dynamics of the underlying component. “Therefore, the composition of the surprise suggests a less unfavorable picture than indicated by its magnitude.”
Regarding the conditional projections, the BC points out that it considers the reversal of the federal tax cuts on gasoline, diesel and ethanol, which are in effect until the end of the year, in addition to the end of the use of the 60-month moving average of prices in the calculation of basis of ICMS on fuel. However, the tax cuts that are of a permanent nature are maintained, in accordance with the legislation in force on the cut-off date of this Report.
This includes maintaining the reduced ICMS rates on fuel, electricity and telecommunications and the removal of transmission and distribution tariffs and sectoral charges from the ICMS calculation base on electricity.
In addition, the scenario considers a drop in consumer gasoline prices due to the decline in the international market. “In the quarter up to February 2023, the average of core inflation should still remain above the level compatible with the upper limit of the interval around the inflation target.”
Projection for total credit balance in 2022 rises to 15.1% and 2023 to 8.3%
The Central Bank (BC) made adjustments to its projections for the credit market in 2022 and 2023. For this year, the institution changed, in the Quarterly Inflation Report (RTI), the estimate for the total credit balance of 14 .2% for an increase of 15.1%.
Within total credit, the projection for the balance of operations with individuals changed from an increase of 16.4% to an increase of 18.1%. In the case of companies, the expectation was from 11.2% to 10.9%.
The projection for the free credit balance – that which does not use savings or BNDES resources – went from a high of 17.2% to an increase of 16.3%. Within free credit, the projection for credit to individuals continued to increase by 19.0%. In the case of legal entities, it went from an increase of 15.0% to an increase of 13.0%.
The BC’s projection for the earmarked credit balance, which uses savings and BNDES resources, increased from 9.7% to 13.4%. Within earmarked credit, the projection of the balance for individuals was up 13.0% for an increase of 17.0%. In the case of legal entities, the projection increased from 4.0% to 7.0%. Previous projections were contained in the September report.
Projection for 2023
For next year, the Central Bank adjusted the projection for total credit from an increase of 8.2% to an increase of 8.3%. At the opening for families, BC changed the estimate from 8.7% to 9.0%. As for companies, the estimate varied from 7.4% to 7.3%.
In free credit, the expectation was revised from 9.6% to 8.6%, divided into an increase of 9.0% for individuals (compared to 10.0% in the September RTI) and an increase of 8.0% for legal entities (against 9.0% before).
The BC still projects an 8.0% increase in earmarked credit next year. In September’s RTI, the forecast was 6.0%. For families, the expectation increased from 7.0% to 9.0% and, for companies, the increase was from 4.0% to 6.0%.