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Economy

Brazil’s Central Bank reduces economic growth projections

Jun, 27, 2019 Posted by datamarnews

Week 201927

The Central Bank of Brazil (CBB) has reduced its projection for economic growth this year. The growth estimate of the Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – went from 2% to 0.8%. The projection has been documented in the Inflation Report, the quarterly publication of the CBB, which was released today (27/06).

The CBB cites that one of the factors responsible for the reduction of the projection is the less-than-expected growth in the first quarter of this year, which reduced the “statistical load [result of what happened in the previous period] for the remainder of the year.” Other factors that influenced the reduction are the absence of clear signs of recovery in the first economic indicators for the second quarter and the “retreat of the indicators of trust of companies and consumers, affecting the perspectives of consumption and investment”.

In addition, the CBB states that the growth prospect of 0.8% is “conditional on the scenario of continuity of the necessary reforms and adjustments in the Brazilian economy and the expectation that activities will recover at a growing pace throughout the rest of the year.”

Sectors

According to the CBB, agricultural and livestock production is expected to grow 1.1% this year, remaining practically stable compared to a forecast increase of 1% in March. This increase in the projection for agriculture and livestock contrasts with reductions in growth forecasts for other sectors.

The projection for the industry’s performance was reduced from 1.8% to 0.2%. The estimate of the variation in output from the industry went from 1.8% to -0.3%. The forecast for the extractive industry declined from 3.2% to 1.5% due to uncertainties about the impacts of the rupture of the mining dam in Brumadinho, Minas Gerais.

The forecast for construction went from an increase of 0.6% to a decrease of 1.0%, although the forecast for the distribution of electricity, gas and water went from 2.3% to 2.8%, due to the expectation of decreased participation of thermal plants this year and favorable amounts rain.

The CBB estimates growth of 1% for the tertiary sector (trade and services) in 2019, with reductions in estimates for the performance of most activities. In March, the forecast was 2%.

There was also a decline in the projection for household consumption from 2.2% to 1.4%, “compatible with the expectation of a more gradual recovery of the wage bill”. The estimate for Gross Fixed Capital Formation (GFCF) – investments – fell from 4.3% to 2.9%, while the projection for government consumption is expected to grow 0.3%, compared to the projected growth of 0.6% in March, “consistent with expectation of worsening tax collection in a scenario of lower economic growth”.

Exports and imports of goods and services should vary, 1.5% and 3.8% respectively, in 2019, compared to respective projections of 3.9% and 5.6% of the March Inflation Report. “The decline in export projections reflects additional reductions in forecasts for world growth, uncertainties about iron ore exports and deepening of the crisis in Argentina, a major destination for industrialized goods,” the CBB says.

The decrease in the import estimate stems from a reduction in the growth projections of the manufacturing industry and the GFCF, “with a consequent decrease in purchases of inputs and machinery and equipment, as well as a reduction in the projection for household consumption.”

Source: Agência Brasil

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