After recent economic activity, Brazil government raises GDP 2021 growth projection to 3.5%.

RIO DE JANEIRO, BRAZIL – Banks and financial analysts have been reassessing the GDP outlook for this year since last week with the first-quarter economic activity indicators posting lower than expected drops, particularly in March.

This Tuesday, May 18, it was the government’s turn to review its GDP outlook. With the activity indicator, particularly the rebound in the services sector, the government estimates that GDP will grow 3.5%, 0.3 percentage points more than the 3.2% projected in March.

According to the Ministry of Economy, growth should be greater starting in the second quarter, with the advance of immunization. “The best economic policy today is mass vaccination,” says Economic Policy Secretary Adolfo Sachsida.

The data are from the Macrofiscal Bulletin, produced by the Secretariat of Economic Policy of the Ministry of Economy, which notes that projections depend on the evolution of the Covid-19 pandemic. In the document, the government highlights the effects of vaccination at global levels, which point to economic recovery and should benefit Brazil. The Ministry of Economy’s officials highlights the increase in commodity prices, a result of the rise in global growth, although it impacts consumer prices.

According to the Ministry of Economy, one of the main points for growth revision is the increase in activity, particularly in the first two months of the year, a period with no emergency aid – which ended in December and was reintroduced in April 2021. In March, despite the increase in social restrictive measures, the performance was better than estimated. “In short, the positive results of Brazilian activity at the start of this year, when compared to initial market expectations, suggest that the economy has maintained its growth trend, despite the end of the emergency aid.”

According to SPE, this scenario should improve in the second quarter, with an increase in the vaccination of the population and, consequently, a greater opening of activities. “Thus, the mass vaccination process will continue to advance, which will bolster economic activity in the second quarter of 2021, especially in the service sector. Mass vaccination, fiscal consolidation, and pro-market reforms will pave the way for long-term growth of the Brazilian economy.”

Concurrently, the portfolio advocates “the maintenance of fiscal consolidation and structural reforms agenda, to ensure that economic expansion will be maintained.” “This is our guarantee that the shock of the crisis will only be transitory,” says Sachsida.

Inflation

In addition, the Secretariat of Economic Policy also revised its projection for inflation this year. According to the document, the IPCA should close the year at 5.05%, above the target center of 3.75%, but within the target ceiling of 5.25%. In March, in its last report, the SPE projected inflation at 4.42%.