In 2023, Brazil experienced a year of growth and prosperity. The economy grew by 2.9% YoY, surpassing initial forecasts of sub 1%. The country also achieved a record trade surplus of $100 billion and saw a significant drop in unemployment to 8%, nearing full employment. Labor productivity also increased. Inflation dropped to 4.6% YoY, finally within the ceiling of the target band. The policy rate was brought down gradually by 200bp to help loosen financial conditions. Despite initial stumbles, economic policy delivered: a new regime for consumption taxes (in the works for the last twenty years); a workable, if sub-optimal, new rule for public expenditure; a reinforced, autonomous, and independent Central Bank; and expanded access to the social safety net.
However, the legacy for 2024 is not entirely positive. Fiscal policy was tremendously expansionary leading to a (primary) deficit of more than 2% of GDP, which is clearly unsustainable. Growth and productivity came from narrow sectors, mainly agribusiness, where, given recent reversals in climate and external demand conditions, some retracement seems in order. Investment was low, too low to contribute to an expansion in the capital stock after depreciation. On the political front, the regime of “coalition presidentialism” revealed an even more assertive and demanding Congress, which compounds fiscal risks – especially in a year of mid-term elections.
The challenge is to favor pragmatism, boost investor confidence, and advance on reforms amid heightened political tensions and demands, diminishing growth, and much more constrained fiscal space.
Please watch the highlight video for the “Brazil: Economic and Political Outlook” to hear a stellar group of analysts discuss these and related topics influencing the expectations and prospects for Brazil in the months ahead.
MODERATORS:
• Paulo Vieira da Cunha, Partner, VERBANK Consulting LLC | Former Deputy Governor, Central Bank of Brazil
• Drausio Giacomeli, Managing Director, Deutsche Bank Securities
SPEAKERS:
• Felipe Pianetti, Director, Portfolio Manager/Analyst, Lazard Asset Management
• Lisa Schineller, Managing Director, Sovereign Ratings Department, Standard & Poor’s
• Roberto Secemski, Chief Brazil Economist, Barclays
