By Gabriel Boren
A Reuters poll of economists showed that the Brazilian economy is undergoing a slight downturn as consumers tighten their financial constraints to cope with the high debt on purchases after the outbreak of the epidemic and the increase in financial costs.
Economic activity got a boost this year from additional public spending measures by President Jair Bolsonaro aimed at improving his re-election chances ahead of the final run-off on October 30 that will decide who will win the top job.
However, Brazilians are now pressing the brakes in the face of rising interest rates on outstanding piles of personal debt, a side effect of the central bank’s tough stance on anti-inflation policy.
Gross domestic product is set to rise just 0.8% next year compared to 2.7% in 2022, according to median estimates in a sample of 39 economists polled Oct 4-13. In July, analysts expected growth of 0.8% in 2023 and 1.4% this year.
“Given monetary policy constraints, we see further constraints in consumption and investment, along with weaker external demand, particularly in 2023,” said Lucas Costa, Latin America economist at Continuum.
Bolsonaro launched a debt forgiveness for consumers who bragged when business returned to normal after the coronavirus pandemic. His rival, former president Luis Inacio Lula da Silva, has also proposed debt forgiveness.
About 68 million Brazilians were blacklisted by credit rating agencies in August due to overdue debt. State bank Caixa Economics Federal expects to restructure about 1 billion reais ($190 million) of overdue credits.
With expectations of capital spending and foreign trade also under a question mark amid challenging international conditions, investors are hoping the next administration will renew Brazil’s pledge of restraint that Bolsonaro breached ahead of the vote.
Desire for moderation
Earlier this month, Lula came close to winning the initial vote, but Bolsonaro beat expectations. The former president currently leads voter preference in the October 30 run-off by a margin of between 4.6% and 8%, according to two polls.
“Lula’s mandate for left-wing politics has fallen with first-round results closer than expected, while his views will have to be more moderate if he is to attract centrist voters,” Amundi’s analysts wrote in a report.
Elsewhere in the region, Mexico’s economy is likely to slow next year as well, expanding by just 1.2% versus 2.0% in 2022. However, unlike Brazil, where consumer prices are already falling, inflation remains unchecked.
“The prospects for weaker growth, gradual normalization of supply chains and lower commodity prices should be supportive of price dynamics in 2023,” said Jose Sanchez, Mexican economist and vice president of HSBC Global Research.
President Andres Manuel Lopez Obrador is implementing some unconventional steps to help lower food costs through “collaborative efforts” with businesses, an approach based in part on voluntary compliance rather than strict intervention.
It pales in comparison to the strict economic controls that the Peronists have imposed in Argentina since the turn of this century, which nonetheless failed to avert what is now the worst cost-of-living crisis in the G-20 major economies.
Argentines face an inflation rate set to hit 100% this year struggling to make ends meet, while the poorest are turning to recycling from landfills or queuing up to sell their possessions at barter clubs.
A new wave of market instability was calmed in July with promises of more austerity measures that helped secure some International Monetary Fund aid but sparked social protests and isolated a weak government.
(For other stories from the Reuters World Economic Poll 🙂
(1 dollar = 5.2605 riyals)
(Reporting and polling by Gabriel Boren in Buenos Aires; Editing by Ross Finley and Jonathan Otis)