IMF sharply improves Brazil’s GDP growth forecast for this year to 5.3 percent

RIO DE JANEIRO, BRAZIL – The International Monetary Fund has sharply improved Brazil’s growth outlook this year, citing its improved terms of trade while lowering its high estimate for 2022.

The IMF’s World Economic Outlook report released Tuesday showed the fund now sees Brazil’s gross domestic product growing 5.3 percent in 2021, 1.6 percentage points higher than its April estimate.

For 2022, however, the growth forecast was reduced by 0.7 points to 1.9%.

The improved scenario for the country this year helped guide the outlook for Latin America and the Caribbean to the economic growth of 5.8 percent in 2021, 1.2 points higher than in April. In contrast, the forecast for the region next year improved only 0.1 points to 3.2 percent.

“The improved projection for Latin America and the Caribbean results mainly from upward revisions in Brazil and Mexico, reflecting better-than-expected first-quarter results,” the IMF said in its report.

In addition, the Fund cited positive effects from the improved scenario for the United States on Mexico and significantly higher trade conditions in Brazil, which benefited from the increase in commodity prices.

The outlook for the emerging and developing economies group, which includes Brazil, increased to 6.3% in 2021 and 5.2% in 2022 from 6.7% and 5.0% previously.

The IMF projection for Brazil’s GDP expansion this year was in line with that of the Ministry of Economy mid-month. But for 2022, the ministry’s expectation is better at 2.51%.

Meanwhile, the estimates for GDP growth in the Focus survey, which the Central Bank conducts weekly with a hundred specialists, is 5.29% for 2021 and 2.10% for 2022.

The IMF pointed to the possibility of a worsening pandemic and tightening external financial conditions, representing a serious setback to the recovery of emerging and developing economies and pushing global growth below the baseline scenario projected in the report.

The report also pointed to high inflation expected for this group of countries, partly related to high food prices.

“Clear communication by central banks on the outlook for monetary policy will be important to shape inflation expectations and prevent a premature tightening of financial conditions,” the IMF said.

“However, there is a risk that temporary pressures will become more persistent and that central banks will need to act preemptively,” it added.