BRASILIA (Reuters) -Brazil’s Finance Ministry on Thursday hiked its projection for economic growth this year but also raised inflation estimates for 2024 and 2025, underlining price impacts from recent floods in Rio Grande do Sul state.
A finance ministry official also said the government is now expecting fewer interest rate cuts and a higher terminal interest rate at the end of the ongoing easing cycle.
Gross domestic product in Latin America’s largest economy is now expected to grow by 2.5% in 2024, up from the 2.2% forecast in March, the ministry’s economic policy secretariat said in a statement.
The government cited robust growth in retail sales and services provided to families, an increase in net job creation and an expansion in credit concessions among the reasons behind the upwards revision.
The estimate for 2025 was held at 2.8%.
The new GDP estimates do not take into account impacts from the deadly floods in Brazil’s southernmost state of Rio Grande do Sul in recent weeks, which killed 151 people and left more than 538,000 displaced.
“The magnitude of the impact depends on the occurrence of new climate events, spillovers of these impacts to nearby states and the effect of fiscal aid and credit programs in cities affected by the rains,” the ministry said.
Fresh inflation forecasts, however, do reflect the recent disaster.
The ministry hiked its forecast for this year’s inflation to 3.70% from 3.50% previously, while 2025 consumer prices are now seen rising 3.20%, compared with the 3.10% forecast in March.
The move captures the effects of the recent depreciation of Brazil’s real against the dollar and impacts of the heavy rains in Rio Grande do Sul on the supply side and on prices of products such as rice, meat and poultry.
“Those prices should rise more sharply in the next two months, but a relevant portion of this increase should recede in the following months, with supply normalization,” said the ministry.
The government also sees fewer cuts this year and higher rates at the end of the cycle than previously forecast, the ministry’s economic policy secretary, Guilherme Mello, said in a press conference.
The Selic rate is already at “very restrictive” levels, he said, arguing that there is room for the central bank to continue easing its policy and still keep it restrictive to economic growth.
His comments come after Brazil’s central bank slowed its pace of rate cuts to 25 basis points last week, after six straight cuts of 50 basis points. The authority also dropped its guidance for the next decisions.
The government’s economic estimates are more optimistic than those of private sector economists surveyed by Brazil’s central bank, who expect GDP growth to reach 2.09% this year and 2% in 2025, with inflation hitting 3.76% in 2024 and 3.66% next year.
(Reporting by Luana Maria Benedito in Sao Paulo, Marcela Ayres and Isabel Versiani in Brasilia; editing by Gabriel Araujo and Leslie Adler)
