FGV researchers presented their GDP growth projections.

FGV’s Brazilian Institute of Economics (IBRE) held the first Economic Outlook Seminar of 2017, on March 13. Held at FGV’s Cultural Center, the event gathered IBRE researchers who presented their Gross Domestic Product (GDP) growth projections, and estimates regarding inflation, corporate and consumer confidence, fiscal and monetary policies, international economy and the job market, among other topics.

Regis Bonelli, coordinator of the Brazilian Institute of Economics’ Macro Bulletin and one of the event organizers, introduced the topics discussed at the event, highlighting the massive drop in Brazil’s GDP in 2016, recently revealed by the Brazilian Institute of Geography and Statistics (IBGE). According to Bonelli, this is the longest and deepest recession ever experienced by the country.

“The GDP dropped 0.9% in the last quarter, matching the average rate of the last 11 quarters in our current downturn period, since the second quarter of 2014. In fact, this rate is slightly higher than the one recorded during Brazil’s last major recession – between the third quarter of 1989 and second quarter of 1992 – when the average drop rate was 0.7%. Hence, the current downturn is not only the country’s longest recession on record, but also the deepest,” said Bonelli, who then went on to show that there are some signs of a recovery, albeit still weak.

The next speaker was economist José Julio Senna, addressing the monetary policy in the U.S. and Brazil. He pointed out that it has been a long time since the country has seen such a highly favorable scenario for Brazil’s inflation. According to Senna, the country’s recession, combined with an economic policy focused on long-term tax adjustments and the international scenario, has been helping tone down inflation, supported by the Central Bank of Brazil.

Aloisio Campelo spoke about the expectations of corporations and consumers. He remembered that the previous seminar addressed the calibration between market confidence and economic recovery, highlighting that early 2017 shows a regained optimism, despite the enduring sense of caution and concern. According to Campelo, although confidence indicators suggest a potential recovery of the economy, the overall scenario is still quite unstable.

The following subject was the short-term inflation outlook. Salomão Quadros highlighted that the inflation rate slowdown trend picked up some momentum as of September 2016 and peaked in January 2017, after which it started to lose some steam. Nevertheless, he pointed out that the inflation should continue to drop, potentially reaching 3.8% by the third quarter. The researcher stated that the food industry is one of the main drivers behind such drop, also noting that we should reach a deflation rate of 2.5% also in the third quarter – which has not occurred since 2006 –, followed by an increase towards the end of the year.

Finally, Silvia Matos addressed macroeconomic projections. She pointed out that there are some signs of a gradual economic recovery, with optimistic outlooks for the first and second quarters of 2017. Matos emphasized that indicators point towards a sluggish recovery and stated that the medium and long-term solvency of the public sector must be restored before the economy can start growing at a faster pace.

After the lectures, the seminar opened the floor for comments. Samuel Pessôa highlighted that Brazil’s economic scenario shows a series of good news after a major recession period, but fiscal figures are utterly terrifying, featuring a record high primary deficit in 2017. Bráulio Borges stated that the international scenario is positive in economic terms, but the political uncertainty around the world creates a dichotomy between global economic growth and political uncertainty. Finally, Armando Castelar mentioned that the current fiscal issue is the most important, and that the debate in Brazilian Congress regarding the social security reform should affect economic analyses for the next few months.

The next IBRE Economic Outlook Seminar will be held on June 12.