Forecast for 2018 and 2019
In this report we present the projections for the key economic variables in 2018 and 2019. GDP growth should reach 3% in 2018 and again in 2019, and the slow economic recovery will keep inflation below the target, at 3.7% in 2018 and 4.25% in 2019. This year, the SELIC rate will likely fall to 6.5%, and then climb to 8% next year, with the exchange rate fluctuating around a stable level of R$3.20/US$. Global GDP growth will favor Brazil’s exports, and the slow rebound of internal economic activity will lead to a gradual increase of imports. With this, the trade surplus of US$ 65 billion in 2018 is expected to fall slightly to US$ 50 billion in 2019, with the current account deficit rising from US$ 5 billion in 2018 to US$ 15 billion in 2019.
Besides the external risk, which can affect the exchange rate more significantly in 2019, huge uncertainty exists in Brazil about the fiscal-political binomial. It is still too soon to have a clear picture about the presidential succession, but we believe the likelihood is high that a centrist coalition will manage to elect the next president, who will maintain an economic team that is committed to pursuing the agenda for reforms. Many of these are needed to put the country on the path to sustainable growth, the most important one being of the pension system, without which it will be impossible to keep spending frozen in real terms and assure a favorable change in the public debt dynamic.
Our hypothesis is that such a coalition will succeed, but the risk cannot be discarded of election of a populist (from the left or right). In this case, besides the volatility that can occur in the final months of 2018, consideration will have to be given to a radically different scenario, whose prediction in 2019 is virtually impossible.
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