BC raises the projection for GDP growth in 2021 to 4.6% – ISTOÉ MONEY

Roberto Campos Neto, President of the Central Bank

by Isabel Versiani

BRASILIA (Reuters) – The Central Bank raised its forecast for growth in the Gross Domestic Product (GDP) in 2021 to 4.6%, against 3.6% estimated in March, citing a better-than-expected result in the first quarter of the year and the indicators available for the current quarter.

“In addition, partial recovery of economic agents’ confidence, measures to preserve employment and income, prognosis for the advance of the vaccination campaign, high commodity prices and lagged effects of the monetary stimulus indicate favorable prospects for the economy,” stated the BC in its latest Quarterly Inflation Report (RTI), released on Thursday.

The document highlights, however, that the pace of growth still faces a lot of uncertainty and cites as main risks the dissemination of new variants of the coronavirus, high costs in some production chains and possible implications of the water crisis.

BC’s new GDP forecast remains below the market’s 5% growth estimate, according to the most recent Focus survey carried out with economic analysts. In an interview with the press to comment on the report, the director of Economic Policy, Fabio Kanczuk, said that the market forecasts a stronger second half than expected by the monetary authority.

Ours is a beautiful number, but the market is stronger”, said Kanczuk.

The revision of the projection for the GDP was mainly determined by the improvement of the forecasts for the service sector, whose growth is now estimated at 3.8%, against 2.8% in March. Forecasts for the performance of agriculture and industry suffered minor adjustments – respectively from +2% to +2.5% and from +6.4% to +6.6%.

From the standpoint of demand, there was an increase in the forecast for household consumption, from 3.5% to 4.0%, and for gross fixed capital formation (GFCF, a measure of investment), from 5.1% to 8.1%. The adjustments, according to BC, reflected an increase in statistical loading after the results of the first quarter.

INFLATION

Regarding monetary policy, the BC repeated in the document the considerations made at its Copom meeting last week, when the Selic rate was raised by 0.75 percentage points, to 4.25%. The text reiterates that, for the next meeting, the Copom foresees another increase of 0.75 percentage points, but that a deterioration in inflation expectations may require a greater tightening.

RTI inflation projections are in line with those disclosed in the Copom statement, with the base scenario pointing to an IPCA of 5.8% in 2021 and 3.5% for next year.

For the short term, the BC informed that its projection is for inflation of 0.62% in June, 0.39% in July and 0.26% in August, accumulating an increase of 1.28% in the quarter (+8.50 % in 12 months).

Kanczuk stated that the so-called output gap, a measure of the idleness of the economy, is negative at 2.5% in the second quarter of this year, according to BC estimates, and the projection is that it will reach close to zero in 2022. quarter that this would occur, the director said he would not comment.

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source https://pledgetimes.com/bc-raises-the-projection-for-gdp-growth-in-2021-to-4-6-istoe-money-2/