Overview – January 2018

This Brazilian Economic Outlook explains that there are three basic sources for the current economic recovery. First, there has been an inventory buildup for three quarters in a row up to the second quarter, following a long period of negative contributions to GDP growth. The second contribution to the rebound in the economy came from the fact that the federal government recently released BRL 42 billion in forced savings accounts. The third source of the current recovery is a significant fall in consumer inflation, which is expected to continue to spur growth in the near future. The low inflation and the subdued inflation expectations led to the lowest expected real interest rates ever in a context of controlled inflation, as the interest rate term structure projects a 3.2% real interest rate on a 12 months horizon. The international scenario has also been very benign, which helps to ensure capital flows into emerging markets in general and, more specifically, into Brazil. 

 The Brazilian GDP made an unexpected move and grew 0.3% Year-over-Year (YoY) in the second quarter of 2017, the first positive print in 12 quarters. This induced an upward review in economic forecasts for 2017 and 2018 GDP growth. For 2017, the Institute for Applied Economic Research (Ipea) forecasts a 0.7% annual growth and an acceleration to 2.6% in 2018. 

 The next session presents a short review of the economy in recent months. It is followed by a brief discussion of the fiscal challenges and a description of the scenario underlying Ipea’s forecasts for 2017 and 2018. 

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