Brazil government cuts GDP forecasts, raises inflation outlook

B3, the Brazilian stock exchange, inaugurates the sculpture of the Golden Bull, which symbolizes the financial market in Sao Paulo
FILE PHOTO: People pose and take pictures of the Golden Bull, a sculpture inaugurated by Brazilian B3 Stock Exchange, symbolizing the financial market, in Sao Paulo, Brazil, November 16, 2021. REUTERS/Amanda Perobelli

November 17, 2021

BRASILIA (Reuters) – Brazil’s economy ministry on Wednesday cut its forecasts for GDP growth this and next year, while it raised its outlook for inflation, showing some economic deterioration on its radar.

GDP is likely to grow by 5.1% this year and 2.1% in 2022, down from 5.3% and 2.5%, respectively from a previous outlook, the government said. Inflation measured by the IPCA consumer price index is seen at 9.7% this year, from 7.9% previously, and 4.7% in 2022, from 3.75% before.

The economy ministry said in a statement that it decided to cut the GDP outlook due to higher interest rates. Brazil’s central bank raised its benchmark interest rate in 150 basis points to 7.75%, in November, in a move aimed to tame double-digit inflation, and it is likely to hike the Selic rate again soon.

Despite lower outlooks for GDP, Brazil’s government remains more optimistic than market participants, who estimate economic growth of 4.88% this year and 0.93% in 2022, according to the Brazilian central bank’s Focus survey of economists.

The government said its higher GDP forecast is based on a better job market as well as on infrastructure investments.

(Reporting by Marcela Ayres, writing by Carolina Mandl, editing by Andrew Heavens and Giles Elgood)