The economic activity growth rate in Brazil is expected to nearly halve from 2023 to 2024, according to economists. They predict that the significant contributions from agribusiness and fiscal stimuli will diminish next year. This shift comes at a time when tight monetary policy continues to influence activity, despite the expected gradual reduction in the key interest rate.
Factors Affecting Economic Growth
Factors that could positively surprise include the government’s debt renegotiation program aimed at reducing low-income families’ debt, federal court judgment payments, and potential economic stimulation measures in the municipal election year. A survey by Valor, which aggregated forecasts from consultancies and financial institutions, predicts Brazil’s GDP to grow by 3% in 2023 and slow to 1.6% in 2024. Estimates for 2024 range from 1% to 2.5%.
Higher Growth Projection for 2023
The 2023 growth projection is notably higher than initial estimates for the year. In December 2022, projections suggested a 0.7% increase. However, the Transition PEC making its way in Congress and expectations surrounding President Luiz Inácio Lula da Silva’s administration led to heightened fiscal uncertainty and an unclear inflation and interest rate outlook.
Slowdown in Growth Momentum
Economists note that 2023’s growth was largely concentrated in the first half, with momentum significantly slowing from the third quarter. This slowdown has led to a cooler economic outlook for 2024. Data from the Brazilian statistics agency IBGE reveals a slowdown from 3.8% GDP growth in the first half of 2023 to 3.2% by September, compared to the same periods in 2022.
Economic Landscape for 2024
As the country transitions from 2023 to 2024, there is a perception that the economy has stalled. However, a closer examination reveals a different story. It is projected to grow by 3% by the year’s end, a commendable achievement. Economists anticipate that 2024 will commence with a challenging economic landscape, mainly because the impacts of monetary easing are yet to be fully realized. While the first half of 2024 might not mirror the remarkable performance of 2023, a gradual uptick is expected. However, economists are not anticipating the same spectacular performance from 2023 for the first half of next year. Mr. Serrano predicts a growth in GDP for the upcoming year of 1.5%. He highlights that the statistical carry-over from 2023 is a mere 0.3%, which is a stark contrast to the significant carry-over observed from 2022 to 2023.
Varying Projections for 2024
César Garritano, chief economist at Somma Investimentos, expects GDP to rise by 1.9% in 2024, slightly higher than the market consensus. For 2023, the projection is for growth of 3%. However, he acknowledges that the economy is practically at a standstill at the end of this year. With a weaker start in agribusiness in 2024, Mr. Garritano doesn’t foresee significant changes in the economy’s dynamics. He anticipates that while monetary policy may remain contractionary by year-end, its effects will have subsided, potentially aiding economic movement.
Agribusiness and Economic Growth
Mr. Serrano highlights a shift in sectoral GDP contributions for 2024, with agribusiness expected to contract by 0.5% due to El Niño’s impact on planting. This follows a 15% growth in 2023. He states, “There’s no real growth in the harvest.” Cecilia Machado of Bocom BBM points out that agriculture’s contribution to 2023’s economic growth extended beyond the primary sector. It positively affected other areas like services through transportation. However, she anticipates potential downside risks for agriculture in 2024 due to these indirect effects. Bocom BBM predicts a 2.9% GDP increase for 2023.
Potential Measures to Stimulate the Economy
Ms. Machado also notes the government’s active stance, with President Luiz Inácio Lula da Silva visibly engaging in public activities. This suggests potential measures to stimulate the economy if signs of a sharper downturn emerge. She points to factors that could positively bias the 1.5% growth estimated for services in the 2024 GDP. Ms. Machado also cites the Desenrola program, expecting reduced debt levels to encourage increased borrowing. She adds, “It could have a delayed impact on the economy.”
Influence of Monetary Policy
Despite the continuation of Selic rate cuts, economists caution that monetary policy effects will take time to significantly influence activity. The projection is for a 9% Selic rate at the cycle’s end, still indicative of a contractionary stance. The nominal neutral rate, considering inflation, would be 8%. This suggests that the tight monetary policy is still affecting activity, especially in the first half of the year.
External Factors Affecting Brazil’s Economy
For 2024, Mr. Garritano does not anticipate the same level of external sector support as in 2023. He predicts a global economic slowdown, including in key partners like the United States, China, and Argentina. Specifically for Argentina, potential challenges there could indirectly affect Brazil.
In conclusion, Brazil’s economic growth rate is expected to slow in 2024 compared to 2023. The contributions from agribusiness and fiscal stimuli are predicted to diminish, while the effects of tight monetary policy continue to influence activity. However, potential positive factors such as the government’s debt renegotiation program and economic stimulation measures could provide some boost to the economy. Overall, economists have varying projections for 2024, with estimates ranging from 1% to 2.5% growth. The economic landscape in 2024 is expected to be challenging, but a gradual uptick is anticipated in the second half of the year.
