BC improves GDP growth projection to 3.2% in 2024, but sees slowdown in 2025 – Money Times

O Banco Central improved its projection for economic growth in 2024 to 3.2%, compared to the 2.3% level estimated in June, according to the Quarterly Inflation Report released this Thursday (26), with a smaller-than-expected impact from the floods in Rio Grande do Sul, but predicting a slowdown in the country in 2025.

The new projection for this year is in line with the calculations of the Ministry of Finance, which also predicts a 3.2% expansion for the GDP. According to the most recent Focus survey, the market estimates that the economy will grow 3.00% in 2024.

The BC stated that the upward revision for this year's GDP is mainly due to the “high positive surprise” in the second quarter, but considered that it expects a slower pace in the second half of this year and throughout 2025, a year for which the authority projects growth of 2.0%.

Among the reasons for the slowdown, the report cited “expectation of lower momentum fiscalinterruption of monetary easing initiated in 2023, lower degree of idleness of production factors and absence of strong external impulse.”

The monetary authority said it expects agriculture to decline by 1.6% in 2024 and grow by 2.0% in 2025. For industry, the Central Bank sees growth of 3.5% in 2024 and 2.4% next year. In the case of services, the forecast is for growth of 3.2% this year and 1.9% in 2025.

In factors closely analyzed for the risk of generating pressure on the inflationthe monetary authority stated that economic activity continued to expand at a strong pace and the labor market remains buoyant.

Inflation

In the document, the BC stated that inflation projections rose across the entire horizon presented in comparison with the analysis carried out in June, thus increasing the distance from the target.

“The increase in the inflation projection over the relevant horizon resulted mainly from stronger-than-expected economic activity, which led to a rise in the estimated output gap, exchange rate depreciation and rising inflation expectations,” he said.

The authority highlighted that accumulated inflation over 12 months rose again, as did short and medium-term inflation expectations.

At this month's meeting, the Monetary Policy Committee (Copom) worsened its own projections, seeing inflation of 4.3% in 2024 and 3.7% in 2025, with Thursday's report pointing to an estimate of 3.3% in 2026.

The inflation target is 3% for this and the next few years, with a tolerance of 1.5 percentage points either way.

According to the Central Bank's calculations, the probability of inflation exceeding the target's upper tolerance limit in 2024 increased from 28% to 36%. In 2025, the chance increased from 21% to 28%. In 2026, the Central Bank projected a 19% probability of exceeding the target ceiling.

Regarding the management of basic interest rates, the BC reiterated the message of Copom minutes that it will monitor the scenarios over time, without giving any future indication of its next steps, insisting on the “firm commitment” to convergence of inflation to the target.