The worsening of the economic situation, with an increase in the inflation and a high political risk, has made economists from financial institutions reduce their Gross Domestic Product growth projections (START) for this year and next year.
After the result below the expected of the START In the second quarter, Itaú Unibanco reduced on Tuesday its expectation of activity growth in 2021, from 5.7% to 5.3%. In light of the higher interest rate scenario, the bank also lowered its projection for 2022, from 1.5% to 0.5%.
Itaú assesses that the fiscal risk has increased with the prospect of increased public spending and, if this materializes, it would bring negative effects to the economy. The bank observes that the unexpected increase in spending on court orders makes it difficult for plans to reconcile an increase in Bolsa Família and the maintenance of the fiscal anchor in the country.
In a report published on Tuesday, Itaú Unibanco also raised its projections for the Selic rate — the country’s basic interest rate — at the end of 2021, from 7.5% to 8.25%, and in 2022, from 7. 5% to 9.0%, due to the more pressured inflation scenario. The bank also raised its forecast for the Broad National Consumer Price Index (IPCA) this year, from 7.70% to 8.40%, and next year, from 3.90% to 4.20%. The indicator measures the country’s official inflation.
“The water situation creates additional pressure on current inflation, via an increase in electricity bills, and also on the price dynamics for the coming year, through the inertia resulting from a higher IPCA and the risk of new measures aimed at reducing In addition, doubts about the trajectory of public accounts, especially with regard to compliance with the spending ceiling in 2022, result in more lasting pressure on the exchange rate, which should appreciate a little less than we expected before”, writes the chief economist of Itaú, Mario Mesquita, in a report.
The bank expects three increases of 1 percentage point in the Selic, from September to December, and a final increase of 0.75 point in early 2022.
The deterioration of the outlook for inflation worsened the economic scenario and caused a series of revisions in the scenario of Banco BV (formerly Banco Votorantim). The projection for the IPCA jumped from 7.7% to 8.2% in 2021 and from 3.6% to 3.8% in 2022. The estimate for the growth of the Gross Domestic Product (START) in 2022, in turn, decreased from 1.8% to 1.5%.
“We had the view that the dollar and raw materials generated temporary shocks, but we changed the reading based on recent inflation data”, says the chief economist of the BV, Roberto Padovani. “Services inflation accelerated due to the reopening, but industrial goods inflation continued under pressure. This accumulation of shocks pushed the IPCA to a level close to 10%, and the level matters.”
Accumulated inflation at the current level, according to Padovani, reinforces contract readjustments and generates an inertia that contaminates expectations for 2022 and 2023. As the inflationary deterioration should demand more from the Central Bank (BC), BV increased by 7.5% to 9.0% the Selic projection at the end of the cycle. The interest rate should reach 8.5% by the end of this year and reach the level estimated at the first meeting of the Monetary Policy Committee (Copom) in 2022.
“The BC will have to raise interest rates up to 9.0%. The pace it chooses. This monetary tightening will be reinforced by a worsening in financial conditions, which made us change the growth scenario in 2022 [de 1,8% para 1,5%]”, says the economist.
Even with the monetary policy reaction to contain the advance of prices, Padovani foresees difficulties in the disinflation process in 2022. Although the rise in interest rates moderates exchange rate variations, there should be an increase in risk in emerging markets and also in the local market, in function of the electoral cycle. In addition, the expectation is for the maintenance of imbalances between supply and demand, especially in the industrial sector, which is still affected by problems in the global chain.
The water crisis, in turn, remains on the radar. With the continuing trend of the La Niña phenomenon, the forecast is for less rain in the period favorable to it, something that implies the use of thermoelectric plants for a longer period of time. “This prevents a deflation in electricity. At best, prices will stay where they are,” projects the economist.