Brazil Cuts Economic Growth Forecast for 2023

BRASILIA (Reuters) – Brazil’s government on Thursday reduced its economic growth forecast for 2023 to 2.3% amid ongoing monetary tightening and increased its inflation outlook, although it projected a more favorable scenario than the market forecasts.

The finance ministry’s economic policy secretariat now anticipates consumer prices will rise 4.8% this year, up from a prior forecast of 3.6% in November, when it believed GDP growth would reach 2.5% this year.

This represents a slowdown from the estimated 3.5% economic growth expected in 2024. Official GDP data will be released in early March.

Economic Policy Secretary Guilherme Mello stated at a press conference, “We believe this is a very realistic and credible scenario,” mentioning that it could be reassessed with significant economic shifts.

Mello highlighted concerns regarding U.S. trade policy under President Donald Trump, though he indicated that recent measures, including tariffs on Brazilian steel, may have sector-specific impacts rather than affecting the overall macroeconomic landscape.

Inflation this year will likely be influenced by the lagged effects of currency depreciation and inflationary inertia, according to Mello’s secretariat report.

Latin America’s largest economy aims for 3% inflation, with a tolerance range of 1.5% percentage points either way, signaling that inflation is expected to surpass the upper limit for the second consecutive year. The inflation rate in 2024 is projected to reach 4.83%.

Despite a more conservative outlook for economic activity and a challenging inflation forecast, the government remains more optimistic than the market. Private-sector economists, when surveyed weekly by the central bank, anticipate GDP growth of 2.03% this year, with consumer prices climbing 5.58%.

The central bank has recently estimated inflation to hit 5.2% this year with GDP expansion of 2.1%, stressing the need for the economy to slow down to mitigate inflationary pressures.

Central bank head Gabriel Galipolo emphasized that policymakers will take necessary time to evaluate whether a cooling trend is firmly established.

In late January, the central bank raised interest rates by 100 basis points to 13.25% and indicated a similar hike for its upcoming policy meeting in March.

Mello pointed out that recent data supports the notion of a gradual economic slowdown, evidenced by confidence indicators, PMIs, and a decline in job creation.

He also noted that the composition of growth this year would be less inflationary, largely supported by the booming agricultural sector with strong harvest expectations, which could help lower food prices.