Freire Towers

The Central Bank is not going to wage war to bring 2023 inflation to 3.25%, the center of the target – the 2022 one has been in the bag for a long time. It raised the basic interest rate, the Selic, to 13.25%, which should rise to 13.5% in August, perhaps 13.75%, and so on. Aside from disasters or miracles, this discussion is about trifles.

The biggest question now is knowing when the Selic starts to fall. Hard to be before the middle of next year. The later it starts to fall, the worse for growth in 2024. The one in 2023 will be difficult to get off the ground, GDP growth of less than 1%.

How can we still save something from 2023 and avoid a typical PIBinho from the years 2017-2019, growth of 1.4% per year in 2024?

Forget, for a moment, the risk of accidents until the end of 2023, no small risks.

It may be possible to brighten up short-term growth if the outlook for who takes over the government in 2023 is long-term. It’s nothing new, unless someone has a miraculous foolproof plan.

The “miracle of growth”, as Lula said in his first term, will not come anytime soon in the next government, whoever is elected. We are not going to turn the key and immediately start the engine of a GDP with a flu because, as many people imagine, until now the obvious and easy has not been done.

“Reforms” or reforms will be needed: in the short term, there are only slightly different solutions to very essential and huge problems. When and if the patient is stabilized, out of imminent risk, it may be possible to invent different things. Now, it’s how ER staff with critically ill patients do: stabilizing.

Reforms, with or without quotes: stabilizing the public debt, fixing the horrible tax system, containing spending on personnel, designing a trade opening, finding a way to use the very little money for public investment in order to push (“leverage”) more private investment etc.

It will be necessary to find some to reverse the highest level and increase in misery in almost two decades, a horror we saw in 2021. There won’t be much more for much more, at least in the stabilization of the patient (until 2024? 2025?).

In short, the short term will depend on the quality and credibility of the long term project. At the latest, the elected official has to say what he is going to do seriously once he wins the election.

As for the very short term, what are the risks? truisms. It is not known how much economic or political atrocity Bolsonaro and the powerful center can still carry out for electoral purposes (or dictatorial ones, no matter if successfully or not). For example, some of the inflation the government is supposed to hide this year (with less fuel taxes) reappears in 2023.

Even US economic sages have no idea what will happen there or are unconvincing about their estimates. How long does inflation last? Will there be a recession? Will the faster interest rate rise trigger a financial crisis? All this beats at least the dollar price. The dollar drags much of our inflation up and down.

Inflation could fall further if commodity prices and/or the dollar become cheaper or if the economic slowdown, which is already starting, is greater than expected. Everything between the improbable and the bad.

When will the price of oil fall (in fact, is it higher than the BC predicted and predicted)? In a world of chronically higher inflation (or fluctuating at higher levels), is it possible for commodities to get cheaper? If there is a world recession, it could be. By the way, the prospect is now of higher world interest rates for quite some time.


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