“...E La Nave Va”

BRAZIL ECONOMICS - Report 21 Nov 2023 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

“…And the ship sails on”

The IBC-Br published last week leaves no doubts: GDP growth is clearly decelerating (Graph 1). After all, the path through which the restrictive monetary policy reduces inflation is the decline of actual GDP in relation to potential GDP. Even though the successive reductions of the SELIC rate have made monetary policy increasingly less restrictive, the lagged effects continue to operate, and it will remain restrictive for an extended period. The exhaustion of the impulse generated by the exceptional growth of agricultural GDP, combined with the predominance of the effects of the restrictive monetary policy over those of the expansionary fiscal policy, will determine the activity trend for the foreseeable future. In the third quarter, GDP likely declined by 0.3%, and after slight improvement in the fourth quarter, activity should wind up growing by 2.9% for the year. This result will leave a carry-over of zero to 2024.

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