Central Bank raises growth forecast to 1.7% and sees inflation of almost 9% in 2022

BC saw positive surprises for GDP in the first half of the year, but sees deceleration in the second half

O Central Bank (BC) revised its growth forecast for this year and started to expect a rise of 1.7% of GDP. The previous expectation, released in March, was 1%.

According to the BC, the positive surprise in the 1st quarter GDP and new high forecast for the second quarter were relevant factors for the revision of expectations.

However, for the second half of the year, the expectation is for a slowdown in economic activity.

“Cumulative effects of the ongoing monetary tightening, persistence of supply shocks and government anticipations for families for the 1st semester contribute to the projection of a cooling down of activity in the 2nd semester”, points out the BC.

In the assessment of the monetary authority, uncertainty in projections is still high due to the continuation of the war in Ukraine and the growing risks of a slowdown in global activity with pressured inflation.

In the domestic economy, positive forecasts for industry and services contribute positively, in addition to household consumption. Fixed capital investment, on the other hand, declined in the first and second quarters.

interest and inflation

In the last week, the Monetary Policy Committee (Copom) of the BC decided to raise the basic interest rate, the Selic, from 12.75% to 13.25% per year. In addition, it signaled the continuity of the upward trend with another increase to 13.5% or 13.75% at the next meeting, in August.

For inflation, the Central Bank’s expectations had already been published in the document that announced the decision to raise interest rates last week. The baseline scenario points to inflation at 8.8% this yearfrom 4% in 2023 and 2.7% in 2024.

If the scenario materializes, it would be the second consecutive year that the inflation target ceiling, which is 3.5%, with a tolerance interval of 1.5 percentage points (pp) upwards or downwards, has been breached.

For 2023, the BC’s current objective, the projection is above the target of 3.25%, but still within the range.

Source: O Globo Agency