Market reduces GDP drop forecast and sees inflation above 2% in 2020 | economy

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Financial market economists have improved their estimate for the fall in Gross Domestic Product (GDP) this year and have also re-estimated inflation above 2% for 2020 – something that hasn’t happened since late April.

Expectations are part of the market bulletin, known as the “Focus” report, released on Monday (28) by the Central Bank (BC). The data was collected last week in a survey of more than 100 financial institutions.

GDP is the sum of all goods and services produced in the country and serves to measure the evolution of the economy.

For 2020, the forecast of economic downturn went from 5.05% to 5.04% in the third consecutive week of improvement and, for 2021, the market continued to project an increase of 3.5%.

The expectation for the level of activity was made amid the pandemic of the new coronavirus, which has brought down the world economy and put the world on the road to a recession. In recent months, however, indicators have shown a recovery in the Brazilian economy.

MARKET FORECASTS FOR 2020 GDP

(IN %)

Source: BANCO CENTRAL

According to the report released by the BC on Monday, financial market analysts raised the inflation estimate for 2020 from 1.99% to 2.05%. It was the seventh high followed by the indicator.

The market’s inflation expectation for this year remains below the central target of 4%, and also below the target system floor, which is 2.5% in 2020.

Under the current rule, the IPCA may vary from 2.5% to 5.5% without the target being formally breached. When the target is not met, the BC has to write a public letter explaining the reasons.

The inflation target is set by the National Monetary Council (CMN). To achieve this, the Central Bank raises or reduces the basic interest rate of the economy (Selic).

For 2021, the financial market maintained its inflation forecast at 3.01%. Next year, the central inflation target is 3.75% and will be officially met if the index fluctuates from 2.25% to 5.25%.

After maintaining the basic interest rate at 2% per year in September, the market continues to predict stability in the economy’s basic interest rate, the Selic, at this level until the end of this year.

By the end of 2021, the market expectation was stable at 2.50% per year. This means that analysts continue to estimate high interest rates next year.

  • Dollar: the projection for the exchange rate at the end of 2020 remained at R $ 5.25. For the closing of 2021, it was stable at R $ 5 per dollar.
  • Trade balance: for the balance of trade (result of total exports minus imports), the projection in 2020 fell from US $ 55.30 billion to US $ 55.15 billion of positive result. For next year, the estimate of the market experts rose from US $ 52.75 billion to a US $ 53.31 billion surplus.
  • Foreign investment: the report’s forecast for the entry of foreign direct investments in Brazil in 2020 rose from US $ 53.76 billion to US $ 55 billion. For 2021, the estimate rose from $ 67 billion to $ 68.50 billion.

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