Should I stay or should I go?
Imbalances continue to accumulate. After some improvement in the performance of public accounts in the first half of the year, largely due to the change in the disbursement date of certain expenditures, notably those related to court-ordered payments, the primary deficit is rising again. It is expected to reach nearly R$ 75 billion in 2025 and, as noted above, even higher values in 2026.
There are two sets of implications: on domestic demand (and therefore inflation) and on the sustainability of public debt.
Regarding the first dimension, there are signs of an economic slowdown, with an important caveat: the labor market, which we will address later. This is not an unexpected consequence of economic policy, at least not from the Central Bank’s perspective.
Indeed, the increase in the benchmark interest rate, which currently stands at around 10% per year in real terms, had and still has as its objective the deceleration of domestic demand growth , hence GDP. Such slowdown, if it results in expansion below potential growth, would reduce the output gap and, through this channel, lead to a subsequent decline in inflation toward the 3% target about two years ahead.
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