Brazil's government hikes 2024 GDP forecast, sees higher inflation

Brazil's Finance Ministry on Thursday hiked its projection for the country's economic growth this year but also raised inflation estimates for 2024 and 2025, underlining price impacts from recent floods in Rio Grande do Sul state. Gross domestic product (GDP) in Latin America's largest economy is now expected to grow 2.5% in 2024, up from the 2.2% forecast in March, the ministry's economic policy secretariat said in a statement.

Brazil's Finance Ministry on Thursday hiked its projection for the country's economic growth this year but also raised inflation estimates for 2024 and 2025, underlining price impacts from recent floods in Rio Grande do Sul state.

Gross domestic product (GDP) in Latin America's largest economy is now expected to grow 2.5% in 2024, up from the 2.2% forecast in March, the ministry's economic policy secretariat said in a statement. The government cited robust growth in retail sales and services provided to families, an increase in net job creation and an expansion in credit concessions among the reasons behind the upwards revision.

The economic growth estimate for 2025 was held at 2.8%. The new GDP estimates do not take into account impacts from the deadly floods in Brazil's southernmost state of Rio Grande do Sul in recent weeks, which killed 151 people and left more than 538,000 displaced.

"The magnitude of the impact depends on the occurrence of new climate events, spillovers of these impacts to nearby states and the effect of fiscal aid and credit programs in cities affected by the rains," the ministry said. Fresh inflation forecasts, however, do reflect the recent disaster.

The ministry hiked its forecast for this year's inflation to 3.70% from 3.50% previously, while 2025 consumer prices are now seen rising 3.20%, compared with the 3.10% forecast in March. The move captures both the effects of the recent depreciation of Brazil's real against the dollar and impacts of the heavy rains in Rio Grande do Sul on the supply side and on prices of products such as rice, meat and poultry.

"Those prices should rise more sharply in the next two months, but a relevant portion of this increase should recede in the following months, with supply normalization," said the ministry. The government's estimates are more optimistic than those of private sector economists surveyed by Brazil's central bank, who expect GDP growth to reach 2.09% this year and 2% in 2025, with inflation hitting 3.76% in 2024 and 3.66% next year.

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