Brazil central bank raises GDP outlook but warns of ‘greater-than-usual uncertainty’

By Jamie McGeever

BRASILIA, Sept 24 (Reuters) – Brazil’s central bank on Thursday boosted its 2020 economic growth forecast to minus 5.0% from minus 6.4%, closer in line with the government and market consensus as the country’s COVID-19 crisis entered a less acute phase in the third quarter.

In its Quarterly Inflation Report, the central bank also said it expects the economy to grow 3.9% next year, although a “greater-than-usual uncertainty” hung over this outlook and fiscal and economic reforms were “essential” to securing a sustainable recovery.

The central bank said next year’s rebound hinges on this reform agenda continuing, and assumes a cooling in the COVID-19 pandemic that will gradually bring mobility and consumption back to pre-lockdown levels.

A gross domestic product slide of 5.0% this year is in line with the government’s -4.7% forecast, and the average of -5.1% in the bank’s latest weekly survey of economists.

On inflation, the central bank said it expects a short-term spike due to higher food prices, but one that will fade. Inflation could reach 2.85% later this year, it said.

Longer term, however, inflation is still on track to undershoot its 2020 and 2021 targets of 4.0% and 3.75%, respectively, according to models using a mix of interest and exchange rate variables.

In four scenarios outlined in the report, 2020 projections were all 2.1%, while the 2021 range was from 2.6% to 3.0%. The range for 2022 was from 3.1% to 3.8%, meaning inflation could meet or exceed the bank’s target of 3.50% for that year.

All four scenarios for 2023, between 3.3% and 4.6%, are above the bank’s goal for that year of 3.25%.

Among its key 2020 economic revisions, the central bank now sees industry contracting by 4.7% instead of 8.5% as predicted three months ago, fixed business investment shrinking by 6.6% instead of 13.8%, but services, which account for two-thirds of all activity, are still expected to shrink by more than 5%.

For next year, the central bank sees a current account deficit of $16.7 billion, or 1.1% of GDP, a trade surplus of $52.7 billion, and foreign direct investment inflows of $65.2 billion.

(Reporting by Jamie McGeever; editing by John Stonestreet and Steve Orlofsky)

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