The small but unexpected drop in Brazilian gross domestic product (GDP) in the second quarter lowered the expectations of banks and other institutions for the performance of economic activity through the end of 2021 and also into 2022.
According to the Brazilian Institute of Geography and Statistics (IBGE), GDP fell 0.1% between April and June, a change defined by the institute as stable, but below the market median, which expected a 0.2% growth.
Analysts’ estimates had been revised downward in recent weeks. According to the Focus bulletin published by the Central Bank on the 30th, before the IBGE figures, the median of economists’ projections was that in 2021 GDP growth would be 5.22%. Last week the index was at 5.27%; seven days earlier, at 5.28%, and early August, at 5.3%.
For 2022, the market had expected growth of 2% at the start of the week, also below the midpoint of the outlook four weeks earlier, which was 2.1%.
“This contraction [do PIB] surprised the market, which should revalue Brazil as a whole, ”explains Étore Sanchez, chief economist at Ativa Investimentos. “This should obviously be reflected in the growth prospects for this year,” he said. The broker was already forecasting a worst-case scenario than the market median, so they decided to maintain their growth forecast of 4.6% for 2021 and 1.6% for 2022.
“This downward revision of this year’s GDP, which is expected to affect the market, should also lead to a lower GDP outlook for 2022. We are already at 1.6%, a very depressed, very bad outlook, while the market is still above 2%. If we look at the openness as a whole, we don’t see a major economic recovery either. Everything should be very gradual and progressive, ”he assesses.
Banco Fibra, which worked with more optimistic figures, lowered forecasts, given “the lagged effects of monetary policy, the weaker impetus from global growth and the impact of contraction linked to the uncertainties of the situation of water “, according to its chief economist, Cristiano Oliveira. If previously the institution predicted an increase of 5.6% for 2021, it is now experiencing growth of 5.2%. For 2022, the prognosis has dropped from 1.7% to 1.1%. “It is worth saying that these estimates are still preliminary and the bias, especially for next year, remains low.”
At XP Investimentos, there was also a downward revision, from 5.5% in 2021 to 5.3%. “We still expect a pickup in GDP growth throughout the second half of 2021, driven mainly by the resumption of services provided to families and the standardization of public services. Nevertheless, in the wake of slightly lower numbers in 2Q [segundo trimestre], we have reviewed the growth of the GDP ”, he informed.
The institution has also revised its growth projection in 2022 to a lower level, from 2.3% to 1.7%. “Heightened perceptions of fiscal risk, political uncertainty and high inflation have dramatically worsened financial conditions in recent weeks. In addition, the effects of the water crisis are putting downward pressure on production and consumption, ”explains XP economist Rodolfo Margato, who sees the risk of an even worse situation.
“We observed that the new baseline scenario does not incorporate electricity rationing per se (forced reduction in consumption), which, if materialized, would further lower GDP next year. The persistence of inflationary pressures and a more intense deceleration of world demand represent other important risks for the scenario of Brazilian economic activity, ”he continues.
Among external analysts, the result also frustrated expectations. Goldman Sachs, which forecast Brazilian GDP growth of 5.4% for 2021, lowered the forecast to 4.9%. For 2022, the financial institution maintained the 2%, but with a downward bias.
Credit Suisse started projecting a 5.3% change in GDP this year, down from a previous estimate of 5.5%. For next year, the forecast has been reduced from 2% to 1.5%. JP Morgan, in turn, changed the prognosis for 2021 from 5.5% to 5.2% and in 2022, from 2% to 1.5%.
The Itaú team maintained its forecast for GDP growth of 5.7% in 2021, but said in a report that the second quarter result “puts a negative bias” in the forecast. “We are still expecting good growth in 2H21 [segundo
semestre de 2021] due to standardization in the service sectors which are still depressed. For 2022, the bank’s economists calculate that the change in GDP will decelerate to 1.5%.
“Sectors heavily dependent on social interaction, such as public administration and other services (which include bars, restaurants, hotels, beauty services, etc.) are still at significantly depressed levels. We continue to expect a recovery in these sectors in 2H21 as social mobility normalizes, ”says an excerpt from a document signed by Luka Barbosa and Matheus Fuck.
Bradesco, which previously forecast 2.2% growth in 2022, reduced the indicator to 1.8% in a report released Wednesday 1. The bank also revised upwards the IPCA projection for 2021, from 7.1% to 7.8%, due to the depreciation of the real “and new surprises in the short term”. For 2021, expected growth has been maintained at 5.2%.
“Industrial goods remain under pressure and the reopening of the economy has resulted in increased demand for services, especially those related to mobility. In addition, the unfavorable climate has increased inflationary pressures, which include electricity, food and ethanol, with its consequences on gasoline prices ”, indicates the document of the team led by Fernando Honorato Barbosa.
The result of the quarterly GDP added to the risk of inflation should weigh negatively on the mood of the investors, estimates Ana Sofia Monteiro, of Phi Investimentos. “As the government had already indicated, this week the readjustment of Brazil’s tariff flag took place at R $ 14.20 per 100 kWh, which puts even more pressure on inflation. For next year, the expectation is 4% inflation, putting even more pressure on the base interest rate, ”he explains. “The downward trend in the market, inflation and rising interest rates are all that risk investors wouldn’t want to hear.”
The government speaks of “growth above 5%” in 2021
Shortly after the publication of the result by the IBGE, Central Bank President Roberto Campos Neto said that the performance of the GDP in the second quarter “was a little weaker than the market had expected”. “We should probably have a downward revision this year,” he said in a public hearing at the House of Representatives’ Finance and Taxation Committee.
For the Minister of the Economy, Paulo Guedes, the drop of 0.1% means that economic activity “was awry”. “It was the most tragic quarter, that’s where the pandemic really hit most Brazilians. It was in April, May and June of this year, with the second wave, and it is precisely in April, May and June that emergency aid, the expansion of assistance programs, returned ”, pondered the minister, who said he expected an increase. to 5.4% of GDP in 2021.
However, the Guedes team itself has adopted a more moderate discourse on the performance of economic activity for the current year. In a briefing note published after the publication of the second quarter results, the Economic Policy Secretariat (SPE) of the Ministry of the Economy said it expected “GDP growth in 2021 of more than 5.0% “. In July, the same secretariat spoke, more precisely, of a 5.3% increase in Brazilian GDP in 2021.