Brazil’s c.bank raises 2024 GDP growth projection to 3.5% amid resilient economic activity

Brazil’s central bank (BCB) raised its GDP growth forecast from 3.2 per cent to 3.5 per cent for 2024 as the country’s economy continues to demonstrate resilience, its latest inflation report showed on Thursday.

Key Drivers of Growth

The revision follows stronger-than-expected performance in the third quarter, marked by robust domestic demand and increased utilisation of production factors. Additionally, early indicators for the fourth quarter suggest continued expansion with no significant signs of slowdown.

• Household Consumption: Growth remains strong, contributing significantly to economic momentum.
• Investment: Gross fixed capital formation (FBCF) continues to rise, though the investment-to-GDP ratio remains slightly below its historical average.
• Agriculture and Industry: While agricultural output faces mild contraction, industrial production has shown consistent growth.

Inflation Challenges and Outlook

Inflation remains above target levels, with the Broad Consumer Price Index (IPCA) accelerating to 4.87 per cent over the past 12 months, up from 4.24 per cent in the previous quarter. The BCB attributes this to a combination of currency depreciation, strong economic activity, and rising food prices, particularly beef.

The inflation outlook for 2025 has also been revised slightly upward to 2.1 per cent, reflecting a cautious stance on global monetary tightening and domestic fiscal conditions.

Labour Market and Credit Conditions

Brazil’s labour market remains robust, with unemployment at historic lows and formal job creation continuing at a steady pace. However, credit markets are showing early signs of tightening, with rising interest rates impacting consumer and business lending.

External Accounts and Fiscal Outlook

The BCB highlighted stable external accounts, though it noted an expected increase in the current account deficit to 2.5 per cent of GDP in 2024. The fiscal outlook remains a point of concern, with the need for fiscal discipline to ensure long-term stability.

Risks and Challenges

The BCB identified key risks, including:

• Upside Risks: Persistent inflationary pressures, stronger-than-expected domestic demand, and sustained currency depreciation.
• Downside Risks: Global economic deceleration and more pronounced effects of monetary tightening on inflation.

Attribution: Amwal Al Ghad English