IMF raises forecast for Brazil’s GDP, which stays under the worldwide common

Entity expects growth of 2.8% for the country this year; estimate for the global economy was maintained at 3.2% for 2022. Brazilian inflation results are better than the global average.

The International Monetary Fund (IMF) published this Tuesday (11) the update of its global economy monitoring report and raised the growth expectation for Brazil’s GDP in 2022.

for the organ, the Brazilian economy is expected to grow 2.8% this year, an increase of 1.1 percentage points compared to the July edition from the World Economic Outlook (WEO). For 2023, the projection is for growth of 1%, a decrease of 0.1 point against its previous projection.

Even with better results, Brazil’s economy lags behind the global and regional growth average.

In this edition, the IMF decided to maintain the projection of 3.2% growth for the global economy, but reduced the expectation for 2023, from 2.9% to 2.7%. It is estimated that about a third of global GDP will contract in the next year.

The Latin America and Caribbean region is expected to grow 3.5% according to IMF calculations. For 2023, the growth projection is 1.7%.

“This is the weakest growth profile since 2001, barring the global financial crisis and the acute phase of the Covid-19 pandemic, and reflects significant slowdowns even for the most developed economies,” the report says.

In terms of inflation, Brazilian projections are better than the global average. The IMF expects 6% by the end of 2022 and 4.7% for 2023. The global average, according to the fund’s calculations, should be 8.8% this year and 6.5% next year.

War, inflation and China

The fund lists three factors of concern for the turbulent moment of the global economy. They are the continuation of the Russian invasion of Ukraine, the inflationary shocks that persist and the Chinese slowdown.

From the beginning, the Ukrainian war had had an impact on the international market for food and fuel, the region’s specialty exports. But the escalation of the conflict triggered a serious energy crisis in Europe, due to the continent’s dependence on trade with the Russians.

Energy prices – in particular, natural gas – have put extra pressure on the cost of living of the European population, which sees inflation rates at the highest levels in almost 50 years.

“Gas prices in Europe have quadrupled since 2021, with Russia cutting deliveries to less than 20% of their levels that year and raising the prospect of power shortages in the coming winter and beyond,” the report reads.

The mix of Covid effects on the global production chain and the crisis caused by the conflict in Eastern Europe resulted in inflationary pressure spread across the most diverse economies.

The IMF says this condition has caused a “synchronized tightening” of global monetary policy and a consequent appreciation of the dollar, which hits even harder in activity and investment in emerging countries.

It is a scenario that leads to the deceleration of the main economies, which contributes to the reduction of projections for 2023. The IMF expects that global inflation will reach its peak at the end of this year, but that it will persist at higher levels for longer. It is expected to reach 4.1% by 2024.

“Price pressures are proving to be quite stubborn and a major source of concern for monetary policymakers”says the text.

Finally, there is uncertainty coming from the Chinese economy due to production drops due to “Covid zero” policies. The country still resorted in 2022 to firm lockdowns against the spread of the virus, which disrupted global logistics chains.

China is an important component of global trade. At a slower pace, it impacts the activity of a range of countries, including emerging ones. “Furthermore, the real estate sector, which accounts for about a fifth of economic activity in China, is rapidly weakening,” says the IMF.

“Capital flows have not recovered, and many low-income people and developing economies remain in debt. The 2022 shocks will reopen economic wounds that were only partially healed after the pandemic,” the fund states.

Calibration is key

Among the challenges presented by the report, the IMF highlights the detailed role of economic policymakers in each country. This is because fighting inflation depends on slowing the economy, but it cannot be done to the point of damaging the country’s economic conditions too much.

“There are risks of both under-tightening and over-tightening. ‘Under-tightening’ would deepen the inflationary process, erode the credibility of central banks and de-anchor inflation expectations. (…) Excessive tightening would push the global economy into an unnecessarily hard recession”, says the IMF.

Despite the overall picture, the challenges are very different in developed and emerging economies. The United States, the United Kingdom and the Eurozone, for example, maintain a full labor market and need to prevent a wage spiral from causing further pressure on inflation.

Emerging countries, on the other hand, have to deal with rising interest rates, rising debt service costs, little fiscal space for social security and higher unemployment figures. All this harms the living conditions of the population and puts pressure on decision makers.

“For many emerging markets, the strength of the dollar is causing major challenges, tightening financial conditions and increasing the cost of imported goods. (…) The appropriate response in most countries is to calibrate monetary policy to maintain price stability, letting exchange rates adjust, conserving valuable foreign exchange reserves for when financial conditions really deteriorate,” says the IMF.

Source: G1