Itaú BBA - A more benign scenario in 2021

Brazil Scenario Review

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A more benign scenario in 2021

June 10, 2021

As the vaccination process advances, we see a more benign scenario than before in 2021

For the version with all charts and tables, please open the attached pdf file

The vaccination campaign is advancing and should allow a return to economic normality still this year. The main risk to consider is the emergence of virus strains that may affect the effectiveness of vaccines distributed in the country.

• We increased our GDP growth forecast for this year to 5.5% from 5.0%, incorporating a higher-than-expected result in 1Q21. For 2022, we continue to expect a deceleration toward +1.8%.

• Better data at the margin and higher growth expectations led us to revise our estimates for the primary budget deficit to 2.0% in 2021 and 1.0% of GDP in 2022 (from 2.8% and 2.0%, respectively).  We revised our forecasts for gross debt to 81.9 % this year and 81.6% of GDP in 2022 (from 84.1% and 84.5%).

• A higher Selic benchmark rate and robust commodity prices, together with improved activity and its positive effects on public debt dynamics, are important drivers of currency appreciation. We revised our year-end forecasts to BRL 4.75 per dollar in 2021 (from 5.30) and BRL 5.10 per dollar in 2022 (from 5.50).

• We lifted our forecast for inflation in 2021 to 5.6% (from 5.3%), incorporating the effects of a stronger economic recovery this year and still-high agricultural commodity prices.

• The narrower output gap (resulting from stronger growth) puts pressure on inflation. To contain the risks of higher inflation spreading to 2022, the Brazilian Central Bank’s Monetary Policy Committee (Copom) will likely raise the Selic rate to 6.00% p.a. at the end of 2021 (5.50% p.a. in our previous scenario). We estimate 3.6% inflation in 2022, close to the target, because the impact of revised activity forecasts will be offset by a higher Selic rate and stronger exchange rate.

Brazil | Forecasts and Data

For the version with all charts and tables, please open the attached pdf file

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