Better perspectives in the midst of internal and external risks
Our projections for 2019 are for GDP growth of 2.4% (versus 1.3% in 2018), with inflation of 4% (thus below the target of 4.25%), and the SELIC rate kept at 6.5% throughout the year. Cyclical recovery will thus accelerate, but the GDP gap will remain in negative territory, leading to inflation below the target and persistence of the SELIC rate at its current level. The driving force of growth will be the increase of 6% in gross fixed capital formation, with expansion of 2.5% in industrial production. The unemployment rate should decline slowly, reaching 11.2% at the end of 2019.
The global economy is decelerating, in particular in China and Europe, so commodity prices should remain relatively stable. All the same, Brazilian exports should rise from US$240 billion in 2018 to US$250 billion in 2019, keeping the trade surplus at around US$60 billion. There has been a structural change in the petroleum balance, which went from a deficit of almost US$4 billion in 2014 to a surplus of US$19 billion in November 2018, and this movement should continue, since the production of petroleum should grow by 10% in 2019 and by an average of 5% a year until 2023.
That scenario is subject to two types of risks. The first is in the domestic front. If the new government spends its political capital to win approval of a strong reform of the pension system, allowing a solid fiscal consolidation, confidence will improve along with growth. But if the government falters in this respect, only achieving a timid reform (as is currently before Congress), even if other reforms are achieved such as privatizations and measures to open the economy, the foundation for faster growth will crumble.
The second risk is external. China’s economy is decelerating, as is Europe’s (more so), and the signs are clear that the American economy will soon behave similarly. However, these forces will not overly hamper Brazil’s performance if the government makes good progress toward the reforms, with emphasis on fiscal consolidation.
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