BRASILIA (Reuters) -Brazil’s government on Thursday cut its economic growth forecast for this year to 2.3% amid ongoing monetary tightening and lifted its inflation outlook, though it projected a more benign scenario than the market.
The finance ministry’s economic policy secretariat now expects consumer prices to rise 4.8% this year, up from a previous forecast of 3.6% in November, when it projected GDP growth would reach 2.5% this year.
That would mark a slowdown from the estimated 3.5% economic growth in 2024.
Official GDP data is set for release in early March.
“We believe this is a very realistic and credible scenario,” Economic Policy Secretary Guilherme Mello said at a press conference, adding that it is subject to reassessment in case of significant shifts in economic conditions.
Mello said U.S.
trade policy under President Donald Trump is a point of concern, but said that measures announced so far – including tariffs on Brazilian steel benefiting from previous exemptions – may have sectoral impacts but will not spill over into the broader macroeconomic picture.
Inflation this year will be “impacted by lagged effects of currency depreciation and (inflationary) inertia,” Mello’s secretariat said in a report.
Latin America’s largest economy targets 3% inflation, with a tolerance range of 1.5 percentage points in either direction, meaning the government expects inflation to breach the upper limit for a second straight year.
In 2024, inflation reached 4.83%.
Despite the more modest outlook for economic activity and the more challenging inflation forecast, government projections remain more optimistic than those of the market.
Private-sector economists surveyed weekly by the central bank expect GDP to grow 2.03% this year, with consumer prices rising 5.58%.
The central bank, which recently estimated inflation to reach 5.2% this year and GDP to expand by 2.1%, has stressed that the economy, which has consistently outperformed expectations, needs to slow down to ease inflationary pressures.
Central bank head Gabriel Galipolo emphasized on Wednesday that policymakers will take as much time as necessary to assess whether this cooling trend is firmly in place.
The central bank raised interest rates by 100 basis points in late January to 13.25% and signaled a hike of the same magnitude for its next policy meeting in March.
Mello noted that recent data already support the view that a gradual economic slowdown is underway, including confidence indicators, PMIs, and a deceleration in job creation.
He also assessed that this year’s growth composition will be less inflationary, relying on the booming agricultural sector, with a strong harvest expected to help ease food prices.
(Reporting by Marcela Ayres; Editing by Kylie Madry and Leslie Adler)
