Excessive rates of interest and destructive overseas weigh and will worsen GDP efficiency in 2023

Economists project lower investment and consumption and cite caution with the rise of Covid-19 in China.

The Gross Domestic Product (GDP) of Brazil grew 0.3% in the 3rd quarter of this year compared to the immediately previous three months, according to data released this Thursday (1st) by the Brazilian Institute of Geography and Statistics (IBGE).

The result confirms the signs of deceleration in the Brazilian economy, and the market expects that the activity will have a more timid growth next year. According to the latest “Focus” report, released on Monday (28) by the Central Bank of Brazil (BC), the estimate is that GDP will grow by only 0.70% in 2023.

But what justifies the drop in growth?

For André Galhardo, the chief economist at Análise Econômica Consultoria, the main cause of this slowdown is the restriction on credit, limited by a Selic (basic interest rate) at 13.75% per annum.

The Gross Domestic Product (GDP) of Brazil grew 0.3% in the 3rd quarter of this year compared to the immediately previous three months, according to data released this Thursday (1st) by the Brazilian Institute of Geography and Statistics (IBGE).

The result confirms the signs of deceleration in the Brazilian economy, and the market expects that the activity will have a more timid growth next year. According to the latest “Focus” report, released on Monday (28) by the Central Bank of Brazil (BC), the estimate is that GDP will grow by only 0.70% in 2023.

But what justifies the drop in growth?

For André Galhardo, the chief economist at Análise Econômica Consultoria, the main cause of this slowdown is the restriction on credit, limited by a Selic (basic interest rate) at 13.75% per annum.

Do uncertainties about public accounts also influence?

Another factor that may also influence next year’s economic activity are government accounts, an issue that is now at the center of market attention. So far, the main wait is for the final text of the Proposed Amendment to the Constitution (PEC) of the Transition. The PEC, which predicts an overflow of about R$ 198 billion outside the spending ceiling in 2023, is already awaiting analysis by the Senate Constitution and Justice Committee (CCJ).

“The volume of expenses allowed by the Transition PEC brings a risk, in our view, if there is a worsening in the perception of fiscal risk by investors. This would raise local interest rates and depreciate the exchange rate, which would result in higher inflation, higher interest rates for longer and, consequently, lower growth”, explains the chief economist of the new Futura Investimentos, Nicolas Borsoi.

On the other hand, he points out that if the final text of the PEC foresees a smaller burst of the spending ceiling, there are chances that the Central Bank will be able to cut the Selic rate, making room for a possible improvement in interest rates. “The interaction between fiscal and monetary policies will be the main factor for the performance of the economy in 2023”, adds Borsoi.

And the external scenario?

It is not just the internal environment that can influence the Brazilian economy. According to economists surveyed by the g1, despite signs of cooling down in inflation in the United States and Europe, China is still a cause for concern. The country’s economy continues to slow down, amid the advance of Covid-19 in Chinese territory.

According to Galhardo, the cases of the disease in the country indicate that the government may further tighten the contingency and social distancing measures, which tends to cause the region’s economy to slow down even further.

In this case, the impact for Brazil would come from international trade🇧🇷 The slowdown may end up reducing demand from the Asian giant, which is the largest buyer of commodities in the world, and affect the Brazilian trade balance. And that’s not counting the possible retraction of supply by China, which would also result in more expensive imports.

In addition, another point cited by economists is the continuation of the war in Ukraine, which could increase production bottlenecks worldwidein addition to the increase in interest rates in the US, which should promote the same movement expected in Brazil in the US economy: a more robust slowdown process.

“So, in the domestic market, we have an economic weakness promoted by interest rates and political uncertainties. Outside, there is a very challenging scenario, which includes China, our main trading partner. Also a very delicate situation in Europe and the United States. All this makes us believe in a slowdown process for the Brazilian economy next year”, analyzes Galhardo.

Source: G1